Competitive effects of mergers and of spectrum divestment remedies in mobile telecommunication markets

Abstract

Motivated by recent mergers in mobile telecommunications markets, this paper investigates the merger induced effects on consumer surplus in a setting where: (i) the industry is modeled as a triopoly in which firms sell products that are both horizontally and vertically differentiated; (ii) the merging parties are able to pool their spectrum assets; and (iii) the joint management of pooled spectrum assets enables merging parties to offer a better quality service, for which customers are willing to pay more. From a merger policy perspective, our contribution is two-fold. First, we conclude that mergers may benefit consumers even in the absence of any cost-related efficiencies and establish under which circumstances this is more likely to occur. Second, our results also indicate that when the merger has a negative impact on consumer surplus, remedies based on reallocation of spectrum are not very likely to change this outcome. The reason is that the circumstances under which the merger is unlikely to benefit consumers are precisely those under which spectrum reallocation will be unable to fix merger-induced anticompetitive effects.