Market Entry, Fighting Brands, and Tacit Collusion: Evidence from the French Mobile Telecommunications Market

Abstract

We study a major new entry in the French mobile telecommunications market, followed by the introduction of fighting brands by the three incumbents. Using an empirical oligopoly model, we find that the incumbents’ fighting brand strategies are difficult to rationalize as unilateral best responses. Instead, their strategies are consistent with a breakdown of tacit semi-collusion: before entry, the incumbents could successfully coordinate on restricting product variety to avoid cannibalization; after entry, this outcome became harder to sustain because of increased business stealing incentives. Consumers gained considerably from the added variety and, to a lesser extent, from the incumbents’ price responses. (JEL L13, L21, L96, M31)

Market Structure, Investment, and Technical Efficiencies in Mobile Telecommunications

“…57 The nesting parameter does not appear to have as much of an impact on the optimal number. While these results are quite sensitive to the choice of the imputed elasticity, Bourreau, Sun and Verboven (2021), also studying the French mobile telecommunications industry, finds an elasticity that corresponds to about -2.5, making it a sensible baseline.…”

“…Free's entry was disruptive, resulting in considerable price and choice set variation, but prices settled down before the period covered by our data. Bourreau, Sun and Verboven (2021) estimate E e O m (θ) to be approximately -2.5; we will treat this value as our baseline imputation, and we will also consider imputations of -1.8 and -3.2 as robustness checks.…”

“…While our analysis assesses the impact of market structure on prices and quality of service, market structure in mobile telecommunications has broader potential impacts: on product proliferation and the types of contracts offered (Seim and Viard, 2011;Fan and Yang, 2020), on coordinated effects (Bourreau, Sun and Verboven, 2021), and on incentives to engage in vertical restrictions (Sinkinson, 2020).…”

“…Consumer demand for a network operator's services depends on its quality of service, and its quality of service depends on consumer demand due to congestion externalities. 10 Most demand models for mobile services do not model the simultaneous determination of demand and quality of service (including Bourreau, Sun and Verboven (2021), Cullen, Schutz and Shcherbakov (2020), Fan and Yang (2020), Nevo, Turner and Williams (2016), Sinkinson (2020), Sun (2015)). Only El Azouzi, Altman and Wynter (2003) and Lhost, Pinto and Sibley (2015) model the simultaneous determination of service quality and choice of service provider using queuing theory like we do.…”

Product Repositioning by Merging Firms*

“…Sullivan [2020] documents that firms may coordinate their product choices in a horizontally differentiated product market, resulting in reduced cannibalization and greater product variety. Bourreau et al [2021] find that firms may collude to restrict the availability of vertically differentiated offerings. See Porter [2020] for a discussion of the literature on coordinated effects.…”