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Competitive Nonlinear Pricing in Duopoly Equilibrium: The Early US Cellular Telephone Industry
(Click above to download a pdf copy of the paper)
- Abstract: This paper presents a framework to estimate an equilibrium
oligopoly model of horizontal product differentiation where firms compete in
nonlinear tariffs. The estimation explicitly incorporates the information
contained in the shape of the tariffs offered by competing duopolists to
recover the structural parameters associated to the distribution of
consumers' unobserved heterogeneity. The model identifies the determinants
of the non-uniform equilibrium markups charged to consumers who make
different usage of cellular telephone services. We then use the model to
study the early U.S. Cellular Telephone Industry and evaluate, among others,
the welfare effects of competition, the benefits of a reduction of the delay
in awarding the second cellular license, and alternative linear and nonlinear
pricing strategies. Our policy evaluations reveal that a single two--part
tariff achieve 63% of the potential welfare gains and 94% of the profits
of a more complex fully nonlinear tariff.
- Co-author: Lars-Hendrik Röller (ESMT, Humboldt University, and WZB).
- Publication: Previously circulated as CEPR DP No. 4069.
- JEL: D43, D82, L96.
- First version: May 2002.
- Current version: April 2004.
- Funding: NSF Grant SES-0318208.
- Seminars: Antitrust Division, U.S. Department of Justice; Berkeley; Carnegie Mellon; CEMFI; Columbia University; Harvard University; Instituto de Análisis Económico; IESE Business School; London Business School; London School of Economics and Political Science; Penn State University; Portuguese Competition Authority; SUNY at Stony Brook; UCLA; Universidad Jaume I de Castellón; University of Pennsylvania; University of Texas-Austin; and Wharton School.
- Conferences: 5th Workshop on the Economics of Information and Network Industries, Kiel 2002; CEPR-ECARES Conference on The Evolution of Market Structure in Network Industries, Brussels 2002; CEPR-Fundación BBVA Conference on Competition Policy and Regulation in International Markets, Madrid 2003; First International Industrial Organization Conference, Boston 2003;
North American Meeting of the Econometric Society, Evanston 2003; and SITE, Stanford University 2003.
- Presentations: PPT; PDF.
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