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What Level of Competition Intensity Maximises Investment in the Wireless Industry?

Author

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  • Georges Vivien Houngbonon

    () (LGI - Laboratoire Génie Industriel - EA 2606 - CentraleSupélec)

  • François Jeanjean

    (Orange Labs - Orange Labs [Belfort] - France Télécom)

Abstract

This paper investigates the relationship between competition and investment in the wireless industry from a dynamic perspective. Using firm level data and instrumental variable estimation strategy, it finds that the relationship is inverted-U shaped. The investment maximising intensity of competition is reached when operators' gross profits represent 37 or 40 percent of their revenues, depending on whether capital expenditures are normalised by the number of subscribers. This finding means that investment increases with competition as long as operators' profits are above the thresholds of 37 or 40 percent of their revenues. Under these thresholds, there is a tradeoff between competition and investment. The paper also finds a significant long run effect of competition on investment which amplifies the short run effect by a factor of 3 to 4.

Suggested Citation

  • Georges Vivien Houngbonon & François Jeanjean, 2016. "What Level of Competition Intensity Maximises Investment in the Wireless Industry? ," Post-Print hal-01653797, HAL.
  • Handle: RePEc:hal:journl:hal-01653797
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01653797
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    References listed on IDEAS

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    Cited by:

    1. Jeanjean, François & Houngbonon, Georges Vivien, 2016. "Optimal Market Structure in the Mobile Industry," 27th European Regional ITS Conference, Cambridge (UK) 2016 148678, International Telecommunications Society (ITS).

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    Keywords

    Competition; Investment; Mobile Telecommunications;

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