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More firms, more competition: is it certain? The case of the fourth operator in France's mobile telephony

Louis de Mesnard ()

No 2009-03, LEG - Document de travail - Economie from LEG, Laboratoire d'Economie et de Gestion, CNRS, Université de Bourgogne

Abstract: The French government plans to authorize a fourth operator to enter the country’s mobile phone market alongside Orange, SFR and Bouygues Telecom. While the French government sees this as a way to foster competition, this paper predicts the move will prove a disappointment. Three points are examined. 1) If the operators are in four-way Cournot competition, minimizing the total profit fails to maximize the consumer surplus and the total surplus; the most realistic price fall is only of 1.11% compared to three-way Cournot competition. 2) The overall incentives for forming a monopoly are positive; when the fourth operator’s costs are high, there will be no move from a three-way Cournot competition to a monopolistic cartel of four because Orange experiences negative incentives; there will be no move from a monopolistic cartel of three to a monopolistic cartel of four. 3) Moving from fourway Cournot competition to a partial cartel formed by Orange, SFR and Bouygues Telecom is unlikely; when the fourth operator enters a market dominated by the monopolistic cartel of Orange, SFR and Bouygues Telecom, these three operators will not continue forming a cartel; excluding the fourth operator from the monopolistic cartel of four is also losing; the cartel formed by SFR, Bouygues Telecom and the fourth operator is never credible either.

Keywords: Cartel; Mobile phone; Mobile telephony; Fourth operator; GSM; 3G. (search for similar items in EconPapers)
JEL-codes: D43 L13 L41 L96 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2009
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