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To Block or not to Block? Network Competition when Skype enters the Mobile Market


  • Bipasa Datta
  • Yu-Shan Lo


Voice over Internet Protocol (VoIP) such as Skype that enables users to make free internet-based calls to other users has been seen as a threat to voice revenues by traditional network operators. While some mobile network operators (MNOs) attempt to block Skype's entry on their networks, some actually welcome it even if it apparently conflicts with their interests in making calling profits. In this paper we develop a Hotelling-style model of network competition between two MNOs to analyse their incentives to accommodate or block Skype. We find that accommodation is the dominant strategy of an MNO whenever its equilibrium voice market share is at least 29%. Furthermore, the overall Nash equilibium of the game can be either symmetric (where Skype's entry is either accommodated or blocked by both MNOs) or asymmetric (where only one has the incentive to accommodate) depending upon the consumers' preference for a certain network and the quality of Skype-based interconnection. In a symmetric accommodation equilibrium, the MNO with a lower (higher) customer valuation is better-off (worse-off) relative to the one where entry is blocked.

Suggested Citation

  • Bipasa Datta & Yu-Shan Lo, 2013. "To Block or not to Block? Network Competition when Skype enters the Mobile Market," Discussion Papers 13/32, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:13/32

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    References listed on IDEAS

    1. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
    2. Paul Bijl & Martin Peitz, 2009. "Access regulation and the adoption of VoIP," Journal of Regulatory Economics, Springer, vol. 35(2), pages 111-134, April.
    3. Peitz, Martin & Valletti, Tommaso M. & Wright, Julian, 2004. "Competition in telecommunications: an introduction," Information Economics and Policy, Elsevier, vol. 16(3), pages 315-321, September.
    4. Gans, Joshua S. & King, Stephen P., 2000. "Mobile network competition, customer ignorance and fixed-to-mobile call prices," Information Economics and Policy, Elsevier, vol. 12(4), pages 301-327, December.
    5. Bipasa Datta & Huw Dixon, 2003. "Free Internet Access and Regulation: A Note," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(3), pages 594-598, September.
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    1. repec:spr:telsys:v:67:y:2018:i:1:d:10.1007_s11235-017-0326-z is not listed on IDEAS

    More about this item


    Mobile network competition; Hotelling model; Voice over IP and Skype; entry; voice and network market shares;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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