Essays on Economics of Network Industries: Mobile Telephony

This thesis addresses theoretical and empirical questions related to network economics. In particular, it analyze network effects and switching costs in the mobile telecommunications industry. The first chapter analyzes competition in a two-period differentiated-products duopoly in the presence of both switching costs and network effects. They are shown to have opposite implications on the demand side, specially in the first period. While the former reduces demand elasticities, the latter increases them. Increases in marginal network benefits imply lower prices in both periods while the effects of switching costs are ambiguous. However, when network effects are strong, and switching costs are moderate, prices in both periods may be lower than those in a market without network effects and switching costs. This property may be exploited to increase aggregate consumer surplus by instituting a switching tax. The second essay analyzes demand for mobile telecommunications services in Germany in the period from January 1998 to June 2003. During this time, subscriber base grew exponentially by about 700% while prices declined only moderately by about 41%. The estimation results indicate that network effects played a significant role in the diffusion of mobile services in Germany. The third chapter employs multinominal and mixed logit on panel data of British households between the years 1999-2001 to estimate the magnitude of switching costs in mobile telephony. According to the estimation results, consumers of mobile services in the UK face significant switching costs which vary in the magnitude across network operators. The choices of network operators are also explained by observed and unobserved heterogeneity in consumers' tastes. The final essay analyzes the impact of regulation on the development and competitiveness of mobile telecommunications industry across the European Union. Using cross-country panel data, a reduced-form and a structural model are estimated. The estimation results indicate that prices are significantly influenced by the regulatory policy