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Competition in Network Industries: Evidence from the Rwandan Mobile Phone Network

Daniel Björkegren

No 2020-04, Working Papers from Brown University, Department of Economics

Abstract: This paper develops a method to analyze the effects of competition policy in a network industry. Competition has mixed effects on incentives to invest: when a network is split between competitors, each captures only a fraction of potential network effects. However, a firm may invest in components that are not shared, to attract customers to its network. I structurally estimate the utility of adopting a mobile phone from its subsequent usage, using transaction data from nearly the entire Rwandan network over 4.5 years. I simulate the equilibrium choices of consumers and network operators, and consider Rwanda’s decision to delay the introduction of competition. I show that there is a policy under which adding a competitor earlier would have reduced prices and increased incentives to invest in rural towers, increasing welfare by the equivalent of 1% of GDP. I analyze the effects of setting different interconnection rates, and reducing switching costs through number portability.

Date: 2020
New Economics Papers: this item is included in nep-com, nep-ind, nep-net and nep-pay
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