[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/war/wpaper/2016-27.html
   My bibliography  Save this paper

Strategic use of external benefits for entry deterrence: the case of a mobile telephony market

Author

Listed:
  • Mikołaj Czajkowski

    (Faculty of Economic Sciences, University of Warsaw)

  • Maciej Sobolewski

    (Faculty of Economi Sciences, University of Warsaw)

Abstract
Recent models of network competition demonstrate the incentives of incumbents to reduce receiver benefits in rival networks through excessive off-net pricing. Theoretical reasoning behind strategic use of call externalities assumes that receiving calls contributes to consumer utility. This paper tests this critical assumption with choice data elicited from users of mobile telephones. We find that receiver benefits are a significant driver of subscription choices and assess customer base stealing effect encountered by the late entrant. Our findings confirm that call externalities can be used to limit late entrants’ growth as has been observed in many European mobile telephony markets.

Suggested Citation

  • Mikołaj Czajkowski & Maciej Sobolewski, 2016. "Strategic use of external benefits for entry deterrence: the case of a mobile telephony market," Working Papers 2016-27, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2016-27
    as

    Download full text from publisher

    File URL: http://www.wne.uw.edu.pl/index.php/download_file/3083/
    File Function: First version, 2016
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hurkens, Sjaak & López, Ángel L., 2012. "The welfare effects of mobile termination rate regulation in asymmetric oligopolies: The case of Spain," Telecommunications Policy, Elsevier, vol. 36(5), pages 369-381.
    2. Greene, William H. & Hensher, David A., 2007. "Heteroscedastic control for random coefficients and error components in mixed logit," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 43(5), pages 610-623, September.
    3. Littlechild, S.C., 0. "Mobile termination charges: Calling Party Pays versus Receiving Party Pays," Telecommunications Policy, Elsevier, vol. 30(5-6), pages 242-277, June.
    4. Hoernig, Steffen, 2007. "On-net and off-net pricing on asymmetric telecommunications networks," Information Economics and Policy, Elsevier, vol. 19(2), pages 171-188, June.
    5. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages 270-307, June.
    6. Rojas, Christian, 2017. "How much is an incoming message worth? Estimating the call externality," Information Economics and Policy, Elsevier, vol. 38(C), pages 23-37.
    7. Luís Cabral, 2011. "Dynamic Price Competition with Network Effects," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(1), pages 83-111.
    8. David Hensher & William Greene, 2003. "The Mixed Logit model: The state of practice," Transportation, Springer, vol. 30(2), pages 133-176, May.
    9. Benjamin E. Hermalin & Michael L. Katz, 2004. "Sender or Receiver: Who Should Pay to Exchange an Electronic Message?," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 423-447, Autumn.
    10. Joan Calzada & Tommaso M. Valletti, 2008. "Network Competition and Entry Deterrence," Economic Journal, Royal Economic Society, vol. 118(531), pages 1223-1244, August.
    11. Jonathan Sandbach & Luke van Hooft, 2010. "Using On-net / Off-net Price Differential to Measure the Size of Call Externalities and its Implications for Setting Efficient Mobile Termination Rates," Chapters, in: Morten Falch & Jan Markendahl (ed.), Promoting New Telecom Infrastructures, chapter 15, Edward Elgar Publishing.
    12. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555.
    13. Doh-Shin Jeon & Jean-Jacques Laffont & Jean Tirole, 2004. "On the Receiver-Pays Principle," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 85-110, Spring.
    14. Harbord David & Pagnozzi Marco, 2010. "Network-Based Price Discrimination and `Bill-and-Keep' vs. `Cost-Based' Regulation of Mobile Termination Rates," Review of Network Economics, De Gruyter, vol. 9(1), pages 1-46, February.
    15. Corrocher, Nicoletta & Zirulia, Lorenzo, 0. "Me and you and everyone we know: An empirical analysis of local network effects in mobile communications," Telecommunications Policy, Elsevier, vol. 33(1-2), pages 68-79, February.
    16. Maicas, Juan Pablo & Polo, Yolanda & Javier Sese, F., 2009. "Reducing the level of switching costs in mobile communications: The case of Mobile Number Portability," Telecommunications Policy, Elsevier, vol. 33(9), pages 544-554, October.
    17. Riccardo Scarpa & John M. Rose, 2008. "Design efficiency for non-market valuation with choice modelling: how to measure it, what to report and why ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(3), pages 253-282, September.
    18. Hoernig, Steffen, 2014. "Competition between multiple asymmetric networks: Theory and applications," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 57-69.
    19. Carlo Cambini & Tommaso M. Valletti, 2008. "Information Exchange And Competition In Communications Networks," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 707-728, December.
    20. Sobolewski, Maciej & Czajkowski, MikoŁaj, 2012. "Network effects and preference heterogeneity in the case of mobile telecommunications markets," Telecommunications Policy, Elsevier, vol. 36(3), pages 197-211.
    21. Czajkowski, Mikołaj & Sobolewski, Maciej, 2016. "How much do switching costs and local network effects contribute to consumer lock-in in mobile telephony?," Telecommunications Policy, Elsevier, vol. 40(9), pages 855-869.
    22. Ferrini, Silvia & Scarpa, Riccardo, 2007. "Designs with a priori information for nonmarket valuation with choice experiments: A Monte Carlo study," Journal of Environmental Economics and Management, Elsevier, vol. 53(3), pages 342-363, May.
    23. Miko?aj Czajkowski & Maciej Sobolewski, 2011. "Measuring network effects in mobile telecommunications markets with stated-preference valuation methods," International Journal of Management and Network Economics, Inderscience Enterprises Ltd, vol. 2(2), pages 197-215.
    24. -, 2014. "Handbook for disaster assessment," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 36823 edited by Eclac.
    25. Richard T. Carson, 2012. "Contingent Valuation: A Practical Alternative When Prices Aren't Available," Journal of Economic Perspectives, American Economic Association, vol. 26(4), pages 27-42, Fall.
    26. Benjamin E. Hermalin & Michael L. Katz, 2011. "Customer or Complementor? Intercarrier Compensation with Two‐Sided Benefits," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 379-408, June.
    27. Hensher,David A. & Rose,John M. & Greene,William H., 2015. "Applied Choice Analysis," Cambridge Books, Cambridge University Press, number 9781107465923, September.
    28. Lukasz Grzybowski & Pedro Pereira, 2011. "Subscription Choices and Switching Costs in Mobile Telephony," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(1), pages 23-42, January.
    29. Ángel L. López & Patrick Rey, 2016. "Foreclosing Competition Through High Access Charges and Price Discrimination," Journal of Industrial Economics, Wiley Blackwell, vol. 64(3), pages 436-465, September.
    30. David Harbord & Steffen Hoernig, 2015. "Welfare Analysis of Regulating Mobile Termination Rates in the U.K," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 673-703, December.
    31. Patrick Degraba, 2003. "Efficient Intercarrier Compensation for Competing Networks When Customers Share the Value of A Call," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(2), pages 207-230, June.
    32. Richard T. Carson & Miko_aj Czajkowski, 2014. "The discrete choice experiment approach to environmental contingent valuation," Chapters, in: Stephane Hess & Andrew Daly (ed.), Handbook of Choice Modelling, chapter 9, pages 202-235, Edward Elgar Publishing.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Clavijo, R, 2022. "Price discrimination under nonuniform calling circles and call externalities," Documentos de Trabajo 20054, Universidad del Rosario.
    2. Hurkens, Sjaak & López, Ángel L., 2021. "Mobile termination rates and retail regimes in Europe and the US: A unified theory of CPP and RPP," Information Economics and Policy, Elsevier, vol. 56(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Agostini, Claudio A. & Willington, Manuel & Lazcano, Raúl & Saavedra, Eduardo, 2017. "Predation and network based price discrimination in Chile," Telecommunications Policy, Elsevier, vol. 41(9), pages 781-791.
    2. Harbord, David & Hoernig, Steffen, 2010. "Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger)," MPRA Paper 21515, University Library of Munich, Germany.
    3. Hurkens, Sjaak & López, Ángel L., 2021. "Mobile termination rates and retail regimes in Europe and the US: A unified theory of CPP and RPP," Information Economics and Policy, Elsevier, vol. 56(C).
    4. Czajkowski, Mikołaj & Sobolewski, Maciej, 2016. "How much do switching costs and local network effects contribute to consumer lock-in in mobile telephony?," Telecommunications Policy, Elsevier, vol. 40(9), pages 855-869.
    5. Sjaak Hurkens & Ángel Luis López, 2010. "Mobile Termination and Consumer Expectations under the Receiver-Pays Regime," Working Papers 10-12, NET Institute.
    6. Sjaak Hurkens & Angel L. Lopez, 2014. "Who Should Pay for Two-Way Interconnection?," Working Papers 774, Barcelona School of Economics.
    7. Luis López, Ángel, 2011. "Mobile termination rates and the receiver-pays regime," Information Economics and Policy, Elsevier, vol. 23(2), pages 171-181, June.
    8. David Harbord & Steffen Hoernig, 2015. "Welfare Analysis of Regulating Mobile Termination Rates in the U.K," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 673-703, December.
    9. Confraria, João & Ribeiro, Tiago & Vasconcelos, Helder, 2017. "Analysis of consumer preferences for mobile telecom plans using a discrete choice experiment," Telecommunications Policy, Elsevier, vol. 41(3), pages 157-169.
    10. Hoernig, Steffen, 2014. "Competition between multiple asymmetric networks: Theory and applications," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 57-69.
    11. Rojas, Christian, 2017. "How much is an incoming message worth? Estimating the call externality," Information Economics and Policy, Elsevier, vol. 38(C), pages 23-37.
    12. Harbord, David & Pagnozzi, Marco, 2008. "On-Net/Off-Net Price Discrimination and 'Bill-and-Keep' vs. 'Cost-Based' Regulation of Mobile Termination Rates," MPRA Paper 14540, University Library of Munich, Germany.
    13. Czajkowski, Mikołaj & Bartczak, Anna & Giergiczny, Marek & Navrud, Stale & Żylicz, Tomasz, 2014. "Providing preference-based support for forest ecosystem service management," Forest Policy and Economics, Elsevier, vol. 39(C), pages 1-12.
    14. Hoernig, Steffen, 2016. "Going beyond duopoly: Connectivity breakdowns under receiving party pays," Information Economics and Policy, Elsevier, vol. 36(C), pages 1-9.
    15. Claudio Agostini & Raul Lazcano & Eduardo Saavedra & Manuel Willington, 2016. "Price Differentiation between On-Net and Off-Net Calls: An Application to the Chilean Telephony Market," Working Papers wp_051, Adolfo Ibáñez University, School of Government.
    16. Ángel L. López & Patrick Rey, 2016. "Foreclosing Competition Through High Access Charges and Price Discrimination," Journal of Industrial Economics, Wiley Blackwell, vol. 64(3), pages 436-465, September.
    17. Muck, Johannes, 2012. "The effect of on-net / off-net differentiation and heterogeneuous consumers on network size in mobile telecommunications : an agent-based aporoach," 23rd European Regional ITS Conference, Vienna 2012 60355, International Telecommunications Society (ITS).
    18. Steffen Hoernig & Marc Bourreau & Carlo Cambini, 2014. "Fixed-mobile integration," Journal of Regulatory Economics, Springer, vol. 45(1), pages 57-74, February.
    19. Clavijo, R, 2022. "Price discrimination under nonuniform calling circles and call externalities," Documentos de Trabajo 20054, Universidad del Rosario.
    20. Rojas, Christian, 2015. "The welfare effects of banning off-net/on-net price differentials in the mobile sector," Telecommunications Policy, Elsevier, vol. 39(7), pages 590-607.

    More about this item

    Keywords

    call externalities; personal network effects; entry deterrence; mobile telephony; stated preferences; discrete choice experiment;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:war:wpaper:2016-27. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marcin Bąba (email available below). General contact details of provider: https://edirc.repec.org/data/fesuwpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.