Regulation and Service Provision in Dynamic Oligopoly: Evidence from Mobile Telecommunications.
I study coverage requirements, a common regulation in the mobile telecommunications industry that intends to accelerate the roll-out of new mobile telecommunications technologies to disadvantaged areas. I argue that the regulation may engender entry deterrence effects that limit its efficacy and lead to technology introduction patterns that are not cost-efficient. To quantify the impact of coverage requirements on market structure and the speed and cost of technology roll-out, I develop and estimate a dynamic game of entry and technology upgrade under regulation. I estimate the model using panel data on mobile technology availability at the municipality level in Brazil. In counterfactual simulations, I find that coverage requirements accelerate the introduction of 3G technology by 1 year, on average, and reduce firms’ profits by 22% relative to a scenario with no regulation. I find the entry deterrence effects to be small. Moreover, an alternative subsidization policy leads to a similar acceleration in the roll-out of 3G and substantially higher aggregate profits, likely increasing aggregate welfare relative to coverage requirements.
Empirical Industrial Organization, Applied Microeconomics
- Aviv Nevo, George A. Weiss and Lydia Bravo Weiss University Professor, University of Pennsylvania
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- Katja Seim, Professor of Economics, Yale University.
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- Jose Miguel Abito, Assistant Professor of Business Economics & Public Policy, University of Pennsylvania
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