Market Entry, Fighting Brands and Tacit Collusion: Evidence from the French Mobile Telecommunications Market
- American Economic Review (Forthcoming)
We study a major new entry in the French mobile telecommunications
market, followed by the introduction of fighting brands by
the three incumbents. Using an empirical oligopoly model, we find
that the incumbents’ fighting brand strategies are difficult to rationalize
as unilateral best responses. Instead, their strategies are
consistent with a breakdown of tacit semi-collusion: before entry,
the incumbents could successfully coordinate on restricting product
variety to avoid cannibalization; after entry, this outcome became
harder to sustain because of increased business stealing incentives.
Consumers gained considerably from the added variety and, to a
lesser extent, from the incumbents’ price responses.
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