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Essays on Competition and Regulation in the Telecommunications Industry

  • Author(s): Baek, Ji Won
  • Advisor(s): Brueckner, Jan K
  • et al.
Abstract

My dissertation is composed of three chapters that focus on competition and regulation in the telecommunications industry.

The first chapter investigates the main determinants of mobile service prices and evaluates the impact of market structure and regulations on retail prices. Both a simultaneous equations model and a reduced form model are estimated using a panel dataset for 36 countries over the period of 1999-2010. The market concentration of mobile network operators (MNOs) has a statistically significant effect on prices in the reduced form regression. The coefficients of regulatory variables, such as mobile number portability (MNP), mobile virtual network operators (MVNOs) and mobile termination rates (MTR), are not significant in both estimations, suggesting that it is hard to conclude that ex post regulations are effective in mature markets. Country-specific cost factors such as population density, interest rates and unit labor costs have positive impacts on prices.

The second chapter examines the structure of the household expenditure on telecommunications services and their relationship with other existing expenditures in South Korea. To estimate the demand for telecommunications services, the linear approximate Almost Ideal Demand System is implemented. The short-run relationship is estimated using a seemingly unrelated regression (SUR) with first differenced series of data, and the long-run relationship is examined through a Vector Error Correction Model (VECM). Both empirical results suggest that the household demand for telecommunications services is income inelastic over the period of 1990.1Q to 2013.2Q while it becomes price elastic after 2006. The results also show that recent telecommunications services have a complementary relationship with public transportation and substitution relationship with cultural services and private education.

The third chapter analyzes the optimal features of three-part tariffs in the presence of heterogeneous consumers for the monopoly case and the duopoly case. Under monopoly case, the low demand users consume at the allowance level while the high demand users consume above it. The marginal utilities of consumption for the low demand type and high demand type exceed marginal cost, and the lump sum fee extracts all the surplus of low demand type. Under duopoly, asymmetric equilibria do not exist and only a symmetric three-part tariff can be achieved as an equilibrium where marginal utilities for all consumers equal marginal cost, confirming that a standard Bertrand outcome holds under the three-part tariff with heterogeneous consumers.

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