Competition Law and Economics
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Competition Law and Economics

Advances in Competition Policy Enforcement in the EU and North America

Edited by Abel M. Mateus and Teresa Moreira

Competition policy is at a crossroads on both sides of the Atlantic. In this insightful book, judges, enforcers and academics in law and economics look at the consensus built so far and clarify controversies surrounding the issue.
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Chapter 10: Modelling Competition and Regulation in Wireless Telecommunications: A Progress Report

Luís Cabral


Luís Cabral1 1. INTRODUCTION AND SUMMARY The conference program states that mergers in regulated markets, and particularly in telecommunications and energy, pose particular problems because of scale and network economies, and due to the intersection of competition and regulatory issues. In this chapter, I focus precisely on the intersection of competition and regulatory issues in general, and on the particular case of wireless telecommunications, an industry where network economies are quite important. About a decade ago, Laffont, Rey and Tirole (1998a,b) (hereafter LRT) lamented the ‘lack of a conceptual framework’ to analyze competition in the telecommunications industry. In fact, sound competition policy must be based on a coherent conceptual model. This is true of any form of economic policy, and competition policy is no exception. LRT filled the above void by introducing a model that ‘depicts the competition between two differentiated networks.’ They analyzed a series of important regulatory issues, including deciding whether to allow price discrimination (different prices for on-net and off-net calls) and setting access charges. In this chapter I report on a new framework for the dynamic analysis of industries with network effects (Cabral, 2008b); and consider applications of this framework to the analysis of regulation and competition policy in the wireless telecommunications industry. The set of issues in which I am interested is similar to, but different from, LRT’s. More importantly, the nature of the framework I consider is quite different from LRT’s. Whereas 1 138 Modelling competition and regulation in wireless...

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