|A 411, Université Paris-Dauphine PSL|
Regulation and Service Provision in Dynamic Oligopoly: Evidence from Mobile Telecommunications
I study the effects of universal service regulation in oligopolistic industries with sunk investment costs, focusing on the Brazilian mobile telecommunications market. To quantify the impact of regulation on service availability, market structure and the speed and cost of roll-out of new technologies, I develop a dynamic game of entry and technology upgrade under regulation and estimate it using new panel data on mobile technology availability in Brazilian municipalities. In counterfactual simulations, I find that the regulation accelerated the introduction of 3G technology by 0.7 years, on average, and reduced firms’ profits by 20%. Though the regulation may act as a commitment device and deter entry, I find those effects to be small. I show that an alternative subsidization policy similarly accelerates the roll-out of 3G and leads to substantially higher aggregate profits, likely increasing aggregate welfare.
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