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Optimal Number of Firms in the Wireless Markets

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  • Jeanjean, François
  • Houngbonon, Georges Vivien

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.

Suggested Citation

  • Jeanjean, François & Houngbonon, Georges Vivien, 2015. "Optimal Number of Firms in the Wireless Markets," 26th European Regional ITS Conference, Madrid 2015 127153, International Telecommunications Society (ITS).
    • Handle: RePEc:zbw:itse15:127153
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    References listed on IDEAS

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    More about this item

    Keywords

    Market structure; Investment; Mobile Telecommunications;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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