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

Abstract

I study the effect of universal service regulation on the roll-out of new mobile telecommunications technologies by oligopolistic service providers. To this end, I develop a non-stationary dynamic game of entry and technology upgrade under regulation, which I estimate using new panel data on mobile technology availability in Brazilian municipalities. I find that the regulation accelerated the introduction of 3G technology to a set of mostly rural municipalities by just over one year, on average, and reduced firms' aggregate profits by 8%. Due to its asymmetric nature, the regulation can act as a commitment device and deter entry and technology upgrade, and it does so in 6.5% of markets. A subsidy auction leads to a similar acceleration of 3G introduction and reduces the regulatory cost by almost 70%, likely increasing aggregate welfare.