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Endogenous Sunk Costs in the Market for Mobile Telecommunications - The Role of Licence Fees

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  • Harald Gruber

    (European Investment Bank)

Abstract

An oligopoly model with endogenous sunk costs illustrates the trade off between ex ante extraction of oligopoly rents and market entry of firms in the mobile telecommunications industry. Competitive bidding for radio frequency licences provides scope for setting market structure endogenously - the higher the licence fee, the lower the number of competitive firms sustained by the market. High licence fees may be a signal for post-entry collusion.

Suggested Citation

  • Harald Gruber, 2002. "Endogenous Sunk Costs in the Market for Mobile Telecommunications - The Role of Licence Fees," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 55-64.
    • Handle: RePEc:eso:journl:v:33:y:2002:i:1:p:55-64
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    File URL: http://www.esr.ie/Vol33_1Gruber.pdf
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    References listed on IDEAS

    as
    1. Gruber, Harald & Verboven, Frank, 2001. "The evolution of markets under entry and standards regulation -- the case of global mobile telecommunications," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1189-1212, July.
    2. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
    3. Offerman, T.J.S. & Potters, J.J.M., 2000. "Does Auctioning of Entry Licences Affect Consumers Prices? An Experimental Study," Other publications TiSEM bf98ad9e-6700-4de3-8697-b, Tilburg University, School of Economics and Management.
    4. Cramton, Peter C, 1995. "Money Out of Thin Air: The Nationwide Narrowband PCS Auction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 267-343, Summer.
    5. Gruber, Harald, 1999. "An investment view of mobile telecommunications in the European Union," Telecommunications Policy, Elsevier, vol. 23(7-8), pages 521-538, August.
    6. repec:bla:jemstr:v:4:y:1995:i:2:p:267-343:a is not listed on IDEAS
    7. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
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    Cited by:

    1. Erik Bohlin & Gary Madden & Aaron Morey, 2010. "An Econometric Analysis of 3G Auction Spectrum Valuations," RSCAS Working Papers 2010/55, European University Institute.
    2. Silvana Robone & Alberto Zanardi, 2006. "Market structure and technology: evidence from the Italian National Health Service," International Journal of Health Economics and Management, Springer, vol. 6(3), pages 215-236, September.
    3. Gary Madden & Erik Bohlin & Paitoon Kraipornsak & Thien Tran, 2014. "The determinants of prices in the FCC's 700 MHz spectrum auction," Applied Economics, Taylor & Francis Journals, vol. 46(17), pages 1953-1960, June.
    4. Hemant K. Sabat, 2008. "Spectrum acquisition strategies adopted by wireless carriers in the USA," Information Systems Frontiers, Springer, vol. 10(1), pages 77-102, March.

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