Hedonic Study on Mobile Telephony Firms' Pricing-Quality Strategies in France

Abstract

The mobile telecommunications sector was included in the French CPI only in January 2004, despite the high growth rates of the market. The technological and commercial innovations that continuously characterize the evolution of the mobile market make the construction of a price index for this industry technically challenging. Indeed, mobile operators offer increasingly complex and diversified products at lower and lower prices. Besides, changes in quality arc reflected by improvements in physical and non-physical characteristics and induce several dimensions in the measurement issue. In the study, we adopt the hedonic price theory to analyze the relation between quality and price in the mobile telephony market during 1996 - 2002 in France. It will be shown that the quality-adjusted price index decline at about 14% from 1997 to 1999 while on the remaining period the price decrease tends to flatten. Then, using estimates from hedonic-price separate equations by operator, the three-mobile providers seem adopting similar pricing behavior. Quality indexes arc also calculated. The results of a comparative analysis indicates that on the period 2000 - 2002 neither the quality nor the price indexes chow significant changes for the three-operators. Theses results are of some consequence, especially after the French antitrust authority decision in December 2005 about the existence of a collusion on the mobile market during the same period (2000 - 2002).