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Quality Competition in Mobile Telecommunications: Evidence from Connecticut

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  • Patrick Sun

    () (Columbia University, Department of Economics, 1022 International Affairs Building, 420 West 118th Street, New York City, NY 10027)

Abstract

Signal quality is a significant contributor to the overall quality of wireless telephone service, which competitive analyses often overlooks. To understand the competitive impact of signal quality investment on further consolidation in this industry, I use a market research survey of choice of wireless service provider and a government database on transmission base stations in Connecticut. Dropped call rates and local coverage improve as base station density increases, so I treat base station density as an endogenous product characteristic and relate it to the local value of wireless services. I find a marginal base station contributes a median 0.15% increase in own market share and a median 0.03% decrease in rival market share. Marginal base station costs are implied to be substantial, so if these costs can be effectively reduced through network integration after a merger, the merging firms and consumers can both benefit through increased base station provision. If such integration is not possible, consumers lose due to either a loss in variety of products or reduced incentives of merged firms to produce quality. These results suggest that merger review must pay careful attention to the potential for network integration in wireless and related industries.

Suggested Citation

  • Patrick Sun, 2014. "Quality Competition in Mobile Telecommunications: Evidence from Connecticut," Working Papers 14-05, NET Institute.
  • Handle: RePEc:net:wpaper:1405
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    References listed on IDEAS

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    2. Yao Luo, 2011. "Nonlinear Pricing with Product Customization in Mobile Service Industry," Working Papers 11-28, NET Institute.
    3. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
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    5. Michaela Draganska & Michael Mazzeo & Katja Seim, 2009. "Beyond plain vanilla: Modeling joint product assortment and pricing decisions," Quantitative Marketing and Economics (QME), Springer, vol. 7(2), pages 105-146, June.
    6. A. P. Lerner, 1934. "The Concept of Monopoly and the Measurement of Monopoly Power," Review of Economic Studies, Oxford University Press, vol. 1(3), pages 157-175.
    7. Peter Kolesar & Edward H. Blum, 1973. "Square Root Laws for Fire Engine Response Distances," Management Science, INFORMS, vol. 19(12), pages 1368-1378, August.
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    More about this item

    Keywords

    quality competition; merger analysis; telecommunications.;

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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