Competition and Quality: Evidence from the Entry of Mobile Network Service
Prof. Yutec Sun
Assistant Professor of Economics, CREST-ENSAI
We measure the impact of a new entry on quality supply and welfare in the French mobile service market, where the service providers compete on investing in network resources to meet fast-growing demand for mobile consumption. As network’s quality is endogenous to strategic investments, it is unclear whether the entry led the market closer to the socially optimal level of quality supply and welfare. We develop a tractable approach to empirically analyze the dynamic oligopoly game of investment in the network resources in the market where consumers face substantial frictions in switching between differentiated services. The counterfactual analysis finds that the quality may be oversupplied in oligopoly competition from the social welfare perspective, while the merger is predicted to yield undersupplied quality.
