Policy Brief: Market Structure, Regulation and the Speed of Mobile Network Penetration

BACKGROUND

In the context of a growing market with consumer network externalities, the speed of a new product’s market penetration is an important summary measure of how well the market is performing for potential consumers.

Mobile network penetration has been expanding rapidly in recent years, although there are signs it is reaching maturity in advanced countries.

There is an important difference between mobile networks and more traditional markets because spectrum limitations have been addressed by strict licensing of operators. This eliminates the threat of entry as a mechanism by which competition works.

METHODOLOGY

  • The aim of the paper is to identify those structural features of a partly regulated market that provide the best competitive environment to maximise the market penetration of a new product: mobile telephony.
  • The focus of the analysis is on three structural features: the number of firms, the conditions of ownership (private versus state), and the existence and independence of an industry regulator.
  • A supplementary issue is whether the effect of a more competitive market structure works mainly through the average price level as distinct from non-price-level elements.
  • The analysis draws on data from a sample of thirty countries over the sixteen years (1991-2006) in which average penetration rose from 2% to 97% of the population. The dataset includes a range of market structures from monopoly up to seven networks.

KEY FINDINGS

  • The history of market structures is found to matter: the analysis reveals that the speed of consumer uptake is maximised in the presence of five firms.
  • Findings are consistent with the view that relatively few firms may be sufficient for competition in relatively homogeneous product markets.
  • More provisionally, it is found that market structure effects do not appear to work exclusively through the level of prices.
  • Digital technology, standardisation, privatisation and independent regulation are also important positive factors.
  • Findings also cast light on how consumers respond to competition between multiple standards: diffusion is faster when there is standardisation.

POLICY ISSUES

Findings are consistent with the view that a balance may need to be struck between investment incentives for network industries characterised by large sunk costs and the benefits of an apparently more competitive market structure, but this balance may require five firms.

This finding is particularly relevant when determining the number of spectrum licenses to be granted, but it is also relevant for merger policy.

Findings additionally support the view that private ownership and independent regulation are also desirable in the absence of an entry threat.

ABOUT THE AUTHORS

Yan Li is a Lecturer in Strategic Management in Norwich Business School, Bruce Lyons is Deputy Director of the ESRC Centre for Competition Policy, and Professor of Economics in the School of Economics, at the University of East Anglia

The original Policy Briefing is available for download here, the Working Paper on which this Briefing is based is available here.

About CCP
The Centre for Competition Policy (CCP) conducts interdisciplinary research into competition policy and regulation.

What do you think?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: