Essays on economics of network industries [Elektronische Ressource] : mobile telephony / vorgelegt von Lukasz Grzybowski

Lukasz Grzybowski

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• Handel

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2005
• Nombre de lectures: 12
• Langue: English

Extrait

Essays on Economics of Network
Industries:
Mobile Telephony
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universit at Munc hen
2005
vorgelegt von
Lukasz Grzybowski
Referent: Professor Stefan Mittnik, Ph.D.
Korreferent: Dietmar Harho , Ph.D.
Promotionsabschlussberatung: 13. Juli 2005Acknowledgements
First and foremost, I would like to thank Toker Doganoglu, for his continued encourage-
ment in my research. Throughout the last few years, Toker has always been available
for me with his excellent advice. He always pushed me to strive for good quality re-
search. We wrote two chapters of this dissertation jointly. I will be always indebted to
him for everything and not just in this area.
I would like also to thank my supervisor Professor Stefan Mittnik for his support.
Because of him, I was able to continue my economic education at the universities in
Kiel and Munich. I am grateful to Professors Dietmar Harho and Joachim Winter for
their willingness to participate in my dissertation committee.
Thanks also to Professor Gerd Hansen and other employees at the Department
of Statistics and Econometrics at the University of Kiel for an unforgettable friendly
working atmosphere, and Farid Toubal for his support and the great times we spent
together. I am grateful to Olivier Godard, Matthias Deschryvere and other friends I
got to know at the University of Kiel.
I would like to thank the Munich Graduate School of Economics for the opportunity
to nalize my dissertation in Munich. I am indebted to my friends at the Center of
Information and Network Economics, Martin Reichhuber, Daniel Cerquera and Katha-
rina Sailer for all the study and things we did together. Professor Monika Schnitzer
deserves a special mention for encouraging me to apply for the Marie Curie Fellowship.
I am grateful to Professor Marc Ivaldi and Professor Bruno Jullien for giving me
the opportunity to participate in the graduate program at GREMAQ at the Universite
Toulouse 1. It was a stimulating experience.
I am indebted to all the institutions which nanced my education, in particularii
the Volkswagen Stiftung for nancing my research at the Center for Information and
Network Economics and Deutsche Forschungsgemeinschaft, which supported my ed-
ucation in Munich. I am grateful to the European Commission for the Marie Curie
Fellowship I received for my stay at the Universitat Pompeu Fabra in Barcelona and
to GREMAQ for supporting my stay at the Universite Toulouse 1.
The Volkswagen Stiftung and the Munich Graduate School of Economics supported
my participation in numerous excellent workshops and conferences: 29th EARIE Con-
ference in Madrid 2002, 30th EARIE Conference in Helsinki 2003, Summer School
on Industrial Dynamics in Cargese 2003, 2nd International Industrial Organization
Conference in Chicago 2004, 19th Annual Congress of the EEA in Madrid 2004, 7th
Workshop on Economics of Information and Network Economics in Kloster Seeon 2004
and European Doctorate Group in Economics Jamboree in Dublin 2004. I would like to
thank participants at these events and those at the seminars at the University of Kiel,
University of Munich, Universitat Pompeu Fabra in Barcelona and IDEI in Toulouse
for helpful comments.
Most important, I would like to thank my parents for their faith in me, which I
often lack. Without them I would not have been able to nalize this work.Contents
Acknowledgements i
1 Introduction 1
2 Dynamic Duopoly Competition with Switching Costs and Network
Externalities 7
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 The Two-Period Game . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3.1 The Second Period . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.3.2 The First Period . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.3.3 The Monotone Comparative Statics . . . . . . . . . . . . . . . . 27
2.3.4 The Case without Rigid Consumers . . . . . . . . . . . . . . . . 31
2.3.5 Switching Taxes: A Policy Suggestion . . . . . . . . . . . . . . 32
2.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.5 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3 Estimating Network E ects in Mobile Telephony in Germany 46
3.1 Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.2 Mobile Telephony in Germany . . . . . . . . . . . . . . . . . . . . . . . 51
3.2.1 Development of the Industry . . . . . . . . . . . . . . . . . . . . 51
3.2.2 Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 53
3.3 Empirical Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54iv
3.3.1 Network E ects in Mobile Telephony . . . . . . . . . . . . . . . 56
3.4 The Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
3.4.1 Instrumental Variables . . . . . . . . . . . . . . . . . . . . . . . 59
3.5 Estimation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
3.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
3.7 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
4 Estimating Switching Costs in Mobile Telephony in the UK 67
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4.2 Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
4.3 Mobile Telephony in the UK . . . . . . . . . . . . . . . . . . . . . . . . 71
4.4 Empirical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4.4.1 Estimation Methodology . . . . . . . . . . . . . . . . . . . . . . 72
4.4.2 The Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.4.3 Choice Determinants . . . . . . . . . . . . . . . . . . . . . . . . 77
4.5 Estimation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
4.5.1 MNL and Mixed Logit . . . . . . . . . . . . . . . . . . . . . . . 79
4.5.2 Logistic Regression . . . . . . . . . . . . . . . . . . . . . . . . . 80
4.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.7 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
5 The Competitiveness of Mobile Telephony across the EU 89
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
5.2 Mobile services in the European Union . . . . . . . . . . . . . . . . . . 93
5.2.1 Development of the Mobile Industry . . . . . . . . . . . . . . . 93
5.2.2 Regulation of the Mobile Industry . . . . . . . . . . . . . . . . . 94
5.2.3 Prices of Mobile Services . . . . . . . . . . . . . . . . . . . . . . 97
5.2.4 Mode of Competition . . . . . . . . . . . . . . . . . . . . . . . . 99
5.3 Empirical analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
5.3.1 The Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
5.3.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103v
5.3.3 Marginal Cost and Markup . . . . . . . . . . . . . . . . . . . . 105
5.3.4 The Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
5.4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
5.4.1 The Reduced Form . . . . . . . . . . . . . . . . . . . . . . . . . 109
5.4.2 The Structural Form . . . . . . . . . . . . . . . . . . . . . . . . 113
5.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
5.6 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Bibliography 133Chapter 1
Introduction
During the last two decades, network industries have been going through a tremendous
transformation. Many countries worldwide started to liberalize traditionally monop-
olized network industries, such as telecommunications, electricity, railways and the
airline industry. Technological progress stimulated the development of new industries
and products, a decline in production costs and a rise in quality. New technologies, such
as personal computers, the Internet, mobile telephony, CD players and many others
experienced dramatic growth rates. For instance, at the end of 2004, about 83% of EU
citizens were connected to mobile telephone networks, just one decade after the startup
of digital cellular services. Also Internet penetration in many countries worldwide has
exceeded 60% of households within one decade.
This transformation process and the establishment of new industries have a critical
impact on lifestyle, working methods and the economy as a whole, through the rising
share in GDP and the creation of new jobs. It is extremely important to understand
the mechanisms, which determine the competition and consumers’ behavior in network
industries. In this way, an appropriate support could be provided for the regulatory and
competition policy, which should facilitate the creation of competitive and innovative
network industries. The key determinants of equilibrium outcomes in many network
industries, such as computers, the Internet and telecommunications, are network e ects
and consumer switching costs.
Network e ects and switching costs introduce di erences in the natur