Collusive Conduct in Duopoly Market Contract and Cross-Ownership in the Mobile Telephone Industry

Also INSEAD Working Paper N 94/22/EPS/MKT The deregulation of the telecommunications industry has resulted in a variety of industry structures, which have been created in the hope of increasing competition. One example is the licensing cellular telephone service in the United States. In the face of the scarce radio spectrum, the FCC has created duopolies in which two firms are granted licenses to compete in strictly defined product and geographic markets. Rate regulation typically imposed for natural monopolies is foregone based on the belief that two firms provide sufficient competition and prevent collusive pricing. The authors test this assertion using data collected from the cellular telephone industry in the United States. Taking advantage of the unique duopolistic competition leads to competitive markets outcomes. They find that cellular prices are significantly above competitive as well as non-cooperative duopoly levels.