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Customer Service Quality and Incomplete Information in Mobile Telecommunications: A Game Theoretical Approach to Consumer Protection

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Abstract

There is growing evidence that low-quality customer service prevails in the mobile telecommunications industry. In this paper we provide theoretical support to this empirical observation by using simple game theoretical models where inefficient low-quality service levels are part of an equilibrium strategy for the firms. We also find that the inefficiency is due to a demand-side market failure generated by incomplete information, and that it does not necessarily vanish with competition or with repeated interaction. This is particularly important in terms of policy implications because it suggests that the inefficiency should be solved through regulation via consumer protection.

Suggested Citation

  • Rafael López Zorzano & Teodosio Pérez-Amaral & Teresa Garín-Muñoz & Covadonga Gijón Tascón, 2012. "Customer Service Quality and Incomplete Information in Mobile Telecommunications: A Game Theoretical Approach to Consumer Protection," Documentos de Trabajo del ICAE 2012-23, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  • Handle: RePEc:ucm:doicae:1223
    Note: The authors wish to thank helpful comments from participants at the 23rd European Regional Conference of the International Telecommunication Society, held in July 2012 at Vienna University of Economics and Business. Corresponding author: Rafael López Zorzano, ralopez@ccee.ucm.es
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    2. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    3. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
    4. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    5. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
    6. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-1346, December.
    7. Smith, Rhonda L, 2000. "When Competition Is Not Enough: Consumer Protection," Australian Economic Papers, Wiley Blackwell, vol. 39(4), pages 408-425, December.
    8. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    9. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
    10. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
    11. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
    12. Helmut Bester, 1998. "Quality Uncertainty Mitigates Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 828-844, Winter.
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    Cited by:

    1. Reza RAJABIUN & Catherine MIDDLETON, 2015. "Lemons on the Edge of the Internet: The Importance of Transparency for Broadband Network Quality," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(98), pages 119-136, 2nd quart.

    More about this item

    Keywords

    Mobile telecommunications; Consumer protection; Game theory; Customer services; Competition; Oligopoly; Market failure; Experience goods; Incomplete information.;

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • 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
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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