nep-ict New Economics Papers
on Information and Communication Technologies
Issue of 2014‒10‒13
three papers chosen by
Walter Frisch
Universität Wien

  1. Unbundling the incumbent: Evidence from UK broadband By Mattia Nardotto; Tommaso Valletti; Frank Verboven
  2. Quality Competition in Mobile Telecommunications: Evidence from Connecticut By Patrick Sun
  3. Competition in the Cryptocurrency Market By Neil Gandal; Hanna Halaburda

  1. By: Mattia Nardotto (University of Cologne); Tommaso Valletti (Imperial College London, University of Rome “Tor Vergata” & CEPR); Frank Verboven (KU Leuven, Telecom ParisTech and CEPR)
    Abstract: We consider the impact of a regulatory process forcing an incumbent telecom operator to make its local broadband network available to other companies (local loop unbundling, or LLU). Entrants are then able to upgrade their individual lines and offer Internet services directly to customers. Employing a very detailed dataset covering the whole of the UK, we find that, over the course of time, many entrants have begun to take advantage of unbundling. LLU entry only had a positive effect on broadband penetration in the early years, and no longer in the recent years as the market reached maturity. In contrast, LLU entry continues to have a positive impact on the quality of the service provided, as entrants differentiate their products upwards compared to the incumbent. We also assess the impact of competition from an alternative form of technology (cable) which is not subject to regulation, and what we discover is that inter-platform competition has a positive impact on both penetration and quality.
    Keywords: regulation, competition, entry, telecommunications, broadband, local loop unbundling
    JEL: D22 K23 L43 L51 L96
    Date: 2014–10–03
  2. By: Patrick Sun (Columbia University, Department of Economics, 1022 International Affairs Building, 420 West 118th Street, New York City, NY 10027)
    Abstract: Signal quality is a significant contributor to the overall quality of wireless telephone service, which competitive analyses often overlooks. To understand the competitive impact of signal quality investment on further consolidation in this industry, I use a market research survey of choice of wireless service provider and a government database on transmission base stations in Connecticut. Dropped call rates and local coverage improve as base station density increases, so I treat base station density as an endogenous product characteristic and relate it to the local value of wireless services. I find a marginal base station contributes a median 0.15% increase in own market share and a median 0.03% decrease in rival market share. Marginal base station costs are implied to be substantial, so if these costs can be effectively reduced through network integration after a merger, the merging firms and consumers can both benefit through increased base station provision. If such integration is not possible, consumers lose due to either a loss in variety of products or reduced incentives of merged firms to produce quality. These results suggest that merger review must pay careful attention to the potential for network integration in wireless and related industries.
    Keywords: quality competition, merger analysis, telecommunications.
    JEL: L15 L40 L96
    Date: 2014–09
  3. By: Neil Gandal (Tel Aviv University and CEPR); Hanna Halaburda (Bank of Canada, CESifo and INE PAN)
    Abstract: We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining the changes over time in exchange rate data among cryptocurrencies. Specifically, we look at two aspects: (1) competition among different currencies, and (2) competition among exchanges where those currencies are traded. Our data suggest that the winner-take-all effect is dominant early in the market. During this period, when Bitcoin becomes more valuable against the U.S. dollar, it also becomes more valuable against other cryptocurrencies. This trend is reversed in the later period. The data in the later period are consistent with the use of cryptocurrencies as financial assets (popularized by Bitcoin), and not consistent with ``winner-take-all'' dynamics.
    Keywords: bitcoin, cryptocurrency, network effects
    JEL: L17 L86
    Date: 2014–09

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