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Competitive Non-Linear Pricing in Duopoly Equilibrium: The Early US Cellular Telephone Industry

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  • Miravete, Eugenio J
  • Röller, Lars-Hendrik

Abstract

This Paper estimates an equilibrium oligopoly model of horizontal product differentiation where firms compete in non-linear tariffs. The estimation explicitly incorporates the information contained in the shape of the tariffs offered by competing duopolists to recover the structural parameters associated to the distribution of consumers’ unobserved heterogeneity. The model identifies the determinants of the non-uniform equilibrium markups charged to consumers who make different usage of cellular telephone services. Estimates are then used to evaluate the welfare effects of competition, a reduction of the delay in awarding the second cellular license, and alternative linear and non-linear pricing strategies. Our policy evaluations reveal that a single two-part tariff achieves 63% of the potential welfare gains and 94% of the profits of a more complex fully nonlinear tariff.

Suggested Citation

  • Miravete, Eugenio J & Röller, Lars-Hendrik, 2003. "Competitive Non-Linear Pricing in Duopoly Equilibrium: The Early US Cellular Telephone Industry," CEPR Discussion Papers 4069, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4069
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    References listed on IDEAS

    as
    1. Marc Ivaldi & David Martimort, 1994. "Competition under Nonlinear Pricing," Annals of Economics and Statistics, GENES, issue 34, pages 13-69.
    2. Meghan Busse & Marc Rysman, 2005. "Competition and Price Discrimination in Yellow Pages Advertising," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 378-390, Summer.
    3. Meghan R. Busse, 2000. "Multimarket Contact and Price Coordination in the Cellular Telephone Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 287-320, June.
    4. Clerides, Sofronis K., 2002. "Book value: intertemporal pricing and quality discrimination in the US market for books," International Journal of Industrial Organization, Elsevier, vol. 20(10), pages 1385-1408, December.
    5. Bruno Biais & David Martimort & Jean-Charles Rochet, 2000. "Competing Mechanisms in a Common Value Environment," Econometrica, Econometric Society, vol. 68(4), pages 799-838, July.
    6. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
    7. Martimort David & Stole Lars, 2003. "Contractual Externalities and Common Agency Equilibria," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-40, July.
    8. David Martimort & Lars Stole, 2002. "The Revelation and Delegation Principles in Common Agency Games," Econometrica, Econometric Society, vol. 70(4), pages 1659-1673, July.
    9. Phillip Leslie, 2004. "Price Discrimination in Broadway Theater," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 520-541, Autumn.
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    Citations

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    Cited by:

    1. Patrick Bajari & Jeremy Fox & Stephen Ryan, 2008. "Evaluating wireless carrier consolidation using semiparametric demand estimation," Quantitative Marketing and Economics (QME), Springer, vol. 6(4), pages 299-338, December.
    2. Khaled Diaw & Jérôme Pouyet, 2004. "Competition, Incomplete Discrimination and Versioning," Working Papers 2004-20, Center for Research in Economics and Statistics.
    3. Miravete, Eugenio J, 2004. "Are all those Calling Plans Really Necessary? The Limited Gains From Complex Tariffs," CEPR Discussion Papers 4237, C.E.P.R. Discussion Papers.
    4. Liang, Julienne, 2015. "How fixed mobile usage interact? Does FTTH deployment influence the interaction?," 26th European Regional ITS Conference, Madrid 2015 127157, International Telecommunications Society (ITS).
    5. Katja Seim & V. Brian Viard, 2011. "The Effect of Market Structure on Cellular Technology Adoption and Pricing," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 221-251, May.
    6. STROUKAL Dominik, 2013. "Price Discrimination On The Marijuana Market: Schwag Or Endo?," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 8(2), pages 128-136, August.
    7. Bonatti, Alessandro, 2011. "Brand-specific tastes for quality," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 562-575, September.
    8. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
    9. Gil, Ricard & Hartmann, Wesley R., 2008. "Why Does Popcorn Cost So Much at the Movies? An Empirical Analysis of Metering Price Discrimination," Research Papers 1983, Stanford University, Graduate School of Business.
    10. Liu, Yizao & Shen, Shu, 2012. "Price Discrimination with Asymmetric Firms: The Case of the U.S. Carbonated Soft Drinks Market," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124619, Agricultural and Applied Economics Association.
    11. Michaela Draganska & Sanjog Misra & Victor Aguirregabiria & Pat Bajari & Liran Einav & Paul Ellickson & Dan Horsky & Sridhar Narayanan & Yesim Orhun & Peter Reiss & Katja Seim & Vishal Singh & Raphael, 2008. "Discrete choice models of firms’ strategic decisions," Marketing Letters, Springer, vol. 19(3), pages 399-416, December.
    12. Khaled Diaw & Jérôme Pouyet, 2005. "Information, competition and (In) complete discrimination," Working Papers hal-00243025, HAL.
    13. Stefano DellaVigna & Ulrike Malmendier, 2006. "Paying Not to Go to the Gym," American Economic Review, American Economic Association, vol. 96(3), pages 694-719, June.
    14. Mark Armstrong, 2005. "Recent Developments in the Economics of Price Discrimination," Industrial Organization 0511004, EconWPA.
    15. Miravete, Eugenio J, 2007. "Competing with Menus of Tariff Options," CEPR Discussion Papers 6279, C.E.P.R. Discussion Papers.
    16. repec:eee:inecon:v:110:y:2018:i:c:p:1-15 is not listed on IDEAS
    17. Eugenio J. Miravete & Lars-Hendrik Röller, 2003. "Estimating Markups under Nonlinear Pricing Competition," CIG Working Papers SP II 2003-21, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    18. Gao, Maija & Hyytinen, Ari & Toivanen, Otto, 2005. "Demand for Mobile Internet: Evidence from a Real-World Pricing Experiment," Discussion Papers 964, The Research Institute of the Finnish Economy.
    19. Ron Borzekowski & Raphael Thomadsen & Charles Taragin, 2009. "Competition and price discrimination in the market for mailing lists," Quantitative Marketing and Economics (QME), Springer, vol. 7(2), pages 147-179, June.
    20. Yao Luo, 2011. "Nonlinear Pricing with Product Customization in Mobile Service Industry," Working Papers 11-28, NET Institute.

    More about this item

    Keywords

    common agency; competitive non-linear pricing; estimation of Equilibrium oligopoly models;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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