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Optimal Number of Firms in the Wireless Markets

François Jeanjean () and Georges Vivien Houngbonon ()

26th European Regional ITS Conference, Madrid 2015 from International Telecommunications Society (ITS)

Abstract: In this paper, we design a theoretical model to analyze the impact of the number of firms on investment in the wireless communications industry. Our model extends the Salop’s framework by introducing investment in quality that either reduces the marginal cost of production or shifts the consumers’ valuation upward. We find that an increase in the number of firms reduces their incentives to invest in quality. The impact on the aggregate industry investment can be non-monotone. These theoretical findings are supported by empirical evidence from the mobile telecommunications industry. More specifically, we find that mobile operators’ investment in network infrastructure is not affected when going from two to three firms; but decreases above three firms. In addition, there is an inverted-U relationship between the industry investment and the number of mobile operators; the maximum being reached at three or four mobile operators.

Keywords: Market structure; Investment; Mobile Telecommunications (search for similar items in EconPapers)
JEL-codes: D21 D22 L13 L40 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-com, nep-net and nep-pay
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