Regulation and Service Provision in Dynamic Oligopoly: Evidence from Mobile Telecommunications

About this event

I study the effects of universal service regulation in oligopolistic industries with sunk investment costs, focusing on the Brazilian mobile telecommunications industry. 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 to small Brazilian municipalities by 0.7 years, on average, and reduced firms’ aggregate profits by 20.04%. Though the regulation may act as a commitment device and deter entry, I find those effects to be quantitatively 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