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Market definition for broadband internet in Slovakia – Are fixed and mobile technologies in the same market?

Listed author(s):
  • Grzybowski, Lukasz
  • Nitsche, Rainer
  • Verboven, Frank
  • Wiethaus, Lars

This paper uses a rich survey of 6446 households in Slovakia to estimate price elasticities of demand for Internet access, and draw implications for market definition. We estimate a mixed logit model, in which households choose between different broadband technologies: DSL, cable modem, fibre, WiFi and mobile. We find that a number of household characteristics influence the technology choices, and there is also significant unobserved heterogeneity. Demand for Internet access is highly price sensitive. The price elasticity of demand for DSL is −3.02, which falls in the middle of the range of elasticities for the other technologies. Furthermore, the price elasticity of demand at the level of all fixed broadband technologies (DSL+cable modem+fibre+WiFi) is equal to −1.98. For a reasonable range of profit margins, this estimate implies that mobile broadband should be included in the relevant antitrust market of fixed broadband. Our findings have implications for competition policy in Central and Eastern European countries where due to poor copper networks mobile broadband is an important alternative to fixed broadband.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167624514000286
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Article provided by Elsevier in its journal Information Economics and Policy.

Volume (Year): 28 (2014)
Issue (Month): C ()
Pages: 39-56

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Handle: RePEc:eee:iepoli:v:28:y:2014:i:c:p:39-56
DOI: 10.1016/j.infoecopol.2014.06.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505549

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  1. Lukasz Grzybowski & Pedro Pereira, 2006. "Simulation of Merger in Mobile Telephony in Portugal," Working Papers 06-22, NET Institute, revised Oct 2006.
  2. Lee, Jongsu & Kim, Yeonbae & Lee, Jeong-Dong & Park, Yuri, 2006. "Estimating the extent of potential competition in the Korean mobile telecommunications market: Switching costs and number portability," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 107-124, January.
  3. Pereira, Pedro & Ribeiro, Tiago, 2011. "The impact on broadband access to the Internet of the dual ownership of telephone and cable networks," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 283-293, March.
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  8. Jerry A. Hausman & J. Gregory Sidak & HalJ. Singer, 2001. "Cable Modems and DSL: Broadband Internet Access for Residential Customers," American Economic Review, American Economic Association, vol. 91(2), pages 302-307, May.
  9. Froeb, Luke & Tschantz, Steven & Werden, Gregory J., 2005. "Pass-through rates and the price effects of mergers," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 703-715, December.
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  11. Kenneth E. Train & Daniel L. McFadden & Moshe Ben-Akiva, 1987. "The Demand for Local Telephone Service: A Fully Discrete Model of Residential Calling Patterns and Service Choices," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 109-123, Spring.
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  13. Srinuan, Pratompong & Srinuan, Chalita & Bohlin, Erik, 2012. "Fixed and mobile broadband substitution in Sweden," Telecommunications Policy, Elsevier, vol. 36(3), pages 237-251.
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  15. Mélisande Cardona & Anton Schwarz & B. Yurtoglu & Christine Zulehner, 2009. "Demand estimation and market definition for broadband Internet services," Journal of Regulatory Economics, Springer, vol. 35(1), pages 70-95, February.
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