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Market Penetration and Late Entry in Mobile Telephony

We consider some two dynamic models of entry in mobile telephony, with and without strategic pricing, and taking into account market penetration at entry, locked-in consumers and tariff-mediated network externalities. We show that on/off-net differentials may reduce the possibility of entry if incumbents are large, while they have no long-run effects if there are no locked-in consumers, or reduce the difference in subscriber numbers in their presence. Asymmetric fixed-to-mobile or mobile-to-mobile termination rates increase (decrease) market share and profit of the network with the higher (lower) rate. While the fixed-to-mobile waterbed effect is not full at the network level, it will be full in the aggregate.

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File URL: http://www.netinst.org/Hoernig_08-38.pdf
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Paper provided by NET Institute in its series Working Papers with number 08-38.

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Length: 28 pages
Date of creation: Oct 2008
Date of revision: Oct 2008
Handle: RePEc:net:wpaper:0838
Contact details of provider: Web page: http://www.NETinst.org/

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  1. Jeffrey Rohlfs, 1974. "A Theory of Interdependent Demand for a Communications Service," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 16-37, Spring.
  2. Doganoglu, Toker & Grzybowski, Lukasz, 2007. "Estimating network effects in mobile telephony in Germany," Information Economics and Policy, Elsevier, vol. 19(1), pages 65-79, March.
  3. Bijwaard, Govert E. & Janssen, Maarten C.W. & Maasland, Emiel, 0. "Early mover advantages: An empirical analysis of European mobile phone markets," Telecommunications Policy, Elsevier, vol. 32(3-4), pages 246-261, April.
  4. Gruber, H. & Verboven, F.L., 1998. "The Diffusion of Mobile Telecommunications Services in the European Union," Discussion Paper 1998-138, Tilburg University, Center for Economic Research.
  5. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
  6. Atiyas, Izak & Dogan, PInar, 0. "When good intentions are not enough: Sequential entry and competition in the Turkish mobile industry," Telecommunications Policy, Elsevier, vol. 31(8-9), pages 502-523, September.
  7. Koski, Heli & Kretschmer, Tobias, 2002. "Entry, Standards and Competition : Firm Strategies and the Diffusion of Mobile Telephony," Discussion Papers 824, The Research Institute of the Finnish Economy.
  8. Martin Peitz, 2005. "Asymmetric Regulation of Access and Price Discrimination in Telecommunications," Journal of Regulatory Economics, Springer, vol. 28(3), pages 327-343, November.
  9. repec:cup:cbooks:9780521637329 is not listed on IDEAS
  10. Roland Artle & Christian Averous, 1973. "The Telephone System as a Public Good: Static and Dynamic Aspects," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 89-100, Spring.
  11. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-31, March.
  12. Mueller, Dennis C., 1997. "First-mover advantages and path dependence," International Journal of Industrial Organization, Elsevier, vol. 15(6), pages 827-850, October.
  13. repec:cup:cbooks:9780521066631 is not listed on IDEAS
  14. Gabrielsen, Tommy Staahl & Vagstad, Steinar, 2008. "Why is on-net traffic cheaper than off-net traffic Access markup as a collusive device," European Economic Review, Elsevier, vol. 52(1), pages 99-115, January.
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