The Effect Of Entry And Market Structure On Cellular Pricing Tactics

We test the effect of entry on the tariff choices of incumbent cellularfirms. We relate the change in the breadth of calling plans between1996, when incumbents enjoyed a duopoly market, and 1998, whenincumbents faced increased competition from personal communicationsservices (PCS) firms. Entry by PCS competitors differed acrossgeographic markets due to the number of licenses left undeveloped as aresult of the bankruptcy of some of the auctions’ winning biddersand due to variation across markets in the time required to build asufficiently large network of wireless infrastructure. We find thatincumbents increase tariff variety in markets with more entrants andthat this effect is not explained by demographic heterogeneity or costdifferences in maintaining calling plans across markets. We also findthat incumbents are more likely to upgrade their technology from the oldanalog technology to the new digital technology in markets with moreentry, suggesting that entry also has indirect effects on tariff choicevia firms' technology adoption decisions.