Marc Bourreau: Professor of Economics at Telecom Paris, academic co-director of the CERRE, and a member of DGComp’s EAGCP
Yutec Sun: Assistant Professor of Economics, CREST-ENSAI
Franck Verboven: Professor of Economics at KU Leuven, Managing Editor of IJIO, Member of IO @ Leuven, Research Fellow at CEPR
We study a major new entry in the French mobile telecommunications market, followed by the introduction of fighting brands by the three incumbents. Using an empirical oligopoly model, we find that the incumbents’ fighting brand strategies are difficult to rationalize as unilateral best responses. Instead, their strategies are consistent with a breakdown of tacit semi-collusion: before entry, the incumbents could successfully coordinate on restricting product variety to avoid cannibalization; after entry, this outcome became harder to sustain because of increased business stealing incentives. Consumers gained considerably from the added variety and, to a lesser extent, from the incumbents’ price responses.
American Economic Review (Forthcoming)