Entry, Standards and Competition: Firm Strategies and the Diffusion of Mobile Telephony

Abstract

This paper studies the effects of a country’s regulatory setting and competitive environment the performance of second-generation (2G) mobile on telecommunication. We consider three dimensions of sector performance: entry time, service prices and diffusion. We address the question of non-random selection arising from cross-country differences in the timing of the commercialization of new technologies. Our empirical exploration shows that this type of sample selection may indeed be a substantial problem in cross-country studies on technology diffusion and yield biased estimates of the policy variables of interest. Our estimation results suggest that standardization accelerates 2G entry and diffusion, although within-standards competition triggers less aggressive price competition than between-standards competition. We also find that an early monopolist will price more aggressively to build up an installed base. Furthermore, we find that liberalizing markets for incumbent technologies (i.e., fixed line telephony) has accelerated the commercialization of 2G.