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 introduction of new mobile
telecommunications technologies to disadvantaged areas. I argue that the regulation’s asymmetric nature may engender entry deterrence effects that limit its efficacy and lead to patterns of technology introduction that are not cost-efficient. To quantify the impact of coverage requirements on the introduction of new technologies and the cost of technology introduction, 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 24% relative to a scenario with no regulation. I find the entry deterrence effects to be small. Moreover, an alternative subsidization policy attains a slightly faster technology rollout and leads to substantial cost-savings for firms, though at the expense of reduced competition in the market. The subsidy is preferable to coverage requirements as long as the additional consumer surplus generated by one more firm in the market is less than 180 USD per consumer per year.
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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