Frank Verboven

The diffusion of mobile telecommunications services in the European Union

We study the determinants of the diffusion of mobile telecommunications services in the European Union in a logistic model of technology diffusion. We find that the transition from the analogue to the digital technology during the early nineties, and the corresponding increase in spectrum capacity, has had a major impact on the diffusion of mobile telecommunications. The impact of introducing competition was also significant, during both the analogue and the digital period, though the effect was proportionately smaller. Finally, we find that countries which granted first licenses at later points in time, show a significant catching-up effect, though international convergence may be expected only by the year 2006. The empirical results remain robust when other possible determinants of diffusion are included, such as the size of the fixed network and GDP per capita.

The Evolution of Markets Under Entry and Standards Regulation - The Case of Global Mobile Telecommunications

We analyse the effects of government policies, such as entry regulation and standard setting, on the evolution of an industry, the global mobile telecommunications markets during 1981-1997. Among other results, we find that countries that issue first licenses at later dates converge rather slowly and only partially, compared to early-moving countries. We find that introducing competition has a strong immediate impact on the diffusion rate, but a rather weak impact afterwards. Sequential entry is preceded by pre-emptive behaviour. These findings are consistent with the presence of consumer switching costs. Concerning standards, we find that setting a standard has a significant positive impact on diffusion for the analogue technology, but not for the digital technology. This suggests that the network advantages from having a single standard are offset by the benefits derived from the battle for developing more efficient digital systems.

Efficiency Gains from Mergers

The purpose of this discussion paper is to contribute to the analysis of two questions. Should a merger control system take into account efficiency gains from horizontal mergers, and balance these gains against the anti-competitive effects of mergers? If so, how should a system be designed to account for efficiency gains? The report is divided into five separate parts. The discussion paper is based on a report to the European Commission. To help answer the two questions we start with an extensive review of the relevant economic research, including both theoretical and empirical work. Next, we review the current practice in seven O.E.C.D. jurisdictions. Finally, we propose a merger control system, emphasizing the central role of informational limitations. Based on our conclusions from the empirical literature that efficiencies may need to be assessed on a case-by-case basis, we construct an information-economizing two-stage decision framework for evaluating mergers. In a first stage, notified mergers are assessed using routine tools with modest information requirements. Mergers that do not pass the first stage test are subject to further investigation, including an efficiency defence. ZUSAMMENFASSUNG - (Effizienzgewinne von Unternehmenszusammenschlussen) Das Diskussionspapier leistet einen Beitrag zur Analyse von zwei wettbewerbspolitischen Fragen: Sollen im Rahmen der Fusionskontrolle Effizienzgewinne horizontaler Zusammenschlusse berucksichtigt und den wettbewerbsbeschrankenden Wirkungen gegenubergestellt werden? Und, falls ja, wie sollten diese Effizienzgewinne im Kontrollprozess berucksichtigt werden? Grundlage fur das Diskussionspapier ist ein Gutachten, das fur die Europaische Kommission erstellt wurde. Die Untersuchung beginnt mit einer ausfuhrlichen Darstellung der relevanten okonomischen Forschung. Dabei werden sowohl theoretische als auch empirische Arbeiten berucksichtigt. Anschliesend wird die gegenwartige Praxis der Fusionskontrolle in sieben OECD-Landern erortert. Auf Basis der gewonnenen Erkenntnisse wird schlieslich ein Verfahren fur die Analyse von Unternehmenszusammenschlussen vorgeschlagen. Das vorgeschlagene Verfahren greift die empirische Erkenntnis auf, das Effizienzgewinne nicht generell aber fallweise von Bedeutung sein konnen. Es wird ein zweistufiger Entscheidungsprozess entwickelt, um einerseits die Informationskosten gering zu halten und andererseits die notwendige Prazision des Kontrollverfahrens zu sichern. In der ersten Stufe des Verfahrens prufen die Wettbewerbsbehorden angemeldete Fusionen anhand von Standardkriterien mit geringen Informationsanforderungen. Nur solche Fusionen, die diesen Test nicht bestehen, werden dann in einer zweiten Stufe einer genaueren Analyse unterzogen, bei der Effizienzgewinne berucksichtigt werden.

Quality-Based Price Discrimination and Tax Incidence: Evidence from Gasoline and Diesel Cars

The existing tax policies toward gasoline and diesel cars in European countries provide a unique opportunity to analyze quality-based price discrimination and the implied tax incidence. In my econometric framework, consumers choose the type of engine based on their annual mileage; prices are set by the manufacturers. The relative pricing of gasoline and diesel cars appears to be consistent with monopolistic price discrimination, effectively segmenting low-mileage from high-mileage consumers. On average, about 75% to 90% of the price differentials between gasoline and diesel cars can be explained by markup differences. I draw implications for the effectiveness and the revenue effects of tax policy.

Product Line Rivalry and Market Segmentation—with an Application to Automobile Optional Engine Pricing

This paper addresses the questions whether and when the pricing practices on base products may differ from those of premium products, sold with options or add-ons. Various alternative models are considered: a monopoly model, a model of brand rivalry with full consumer information and a model of rivalry in which consumers are only well informed about base product prices. Only the brand rivalry model with limited consumer information predicts that premium products have larger percentage markups than base products, provided that brand rivalry is sufficiently intense. Empirical evidence on base and premium product pricing in the automobile market is consistent with the limited information model and inconsistent with the other two models. Copyright 1999 by Blackwell Publishing Ltd

Discrimination and Nepotism: The Efficiency of the Anonymity Rule

We develop an experimental test to distinguish between discrimination against and nepotism. The experiment compares the behavior toward individuals of different groups with the behavior toward anonymous individuals (those having no clear group affiliation). Not only is the distinction between the different types of discrimination important for the study of social segmentation, but it has interesting policy implications regarding the effectiveness and the efficiency of antidiscriminatory legislation. We study two segmented societies: Belgian (Flemish versus Walloons) and Israeli (religious versus secular). In Belgium, we find evidence of discrimination. Both the Walloons and the Flemish treat people of their own group in the same way as anonymous individuals while discriminating against individuals of the other group. In contrast, the behavior of ultraorthodox religious Jews in Israel can be categorized as nepotism: they favor members of their own group while treating anonymous individuals in the same way as secular individuals.

Entry and Regulation - Evidence from Health Care Professions

In many countries, pharmacies receive high regulated markups and are protected from competition through geographic entry restrictions. We develop an empirical entry model for pharmacies and physicians with two features: entry restrictions and strategic complementarities. We find that the entry restrictions have directly reduced the number of pharmacies by more than 50%, and also indirectly reduced the number of physicians by about 7%. A removal of the entry restrictions, combined with a reduction in the regulated markups, would generate a large shift in rents to consumers, without reducing the availability of pharmacies. The public interest motivation for the current regime therefore has no empirical support.

Unbundling the Incumbent: Evidence from UK Broadband

We consider the impact of a regulatory process forcing an incumbent telecom operator to make its local broadband network available to other companies (local loop unbundling, or LLU). Entrants are then able to upgrade their individual lines and offer Internet services directly to customers. Employing a very detailed data set covering the whole of the United Kingdom, we find that, over the course of time, many entrants have begun to take advantage of unbundling. LLU entry only had a positive effect on broadband penetration in the early years, and no longer in the recent years as the market reached maturity. In contrast, LLU entry continues to have a positive impact on the quality of the service provided, as entrants differentiate their products upwards compared to the incumbent. We also assess the impact of competition from an alternative form of technology (cable) which is not subject to regulation, and what we discover is that inter-platform competition has a positive impact on both penetration and quality.

Presents or investments? An experimental analysis

Individuals frequently transfer commodities without an explicit contract or an implicit enforcement mechanism. We design an experiment to study whether such commodity transfers can be viewed as investments based on trust and reciprocity, or whether they rather resemble presents with distributional intentions. Our experiment essentially modifies Berg et al.s investment game by introducing an upper bound to what a contributor can be repaid afterwards. By varying this upper bound, extreme situations such as unrestricted repayment and no repayment (dictator giving) can be approximated without altering the verbal instructions otherwise. Our results show that individuals contribute more when large repayments are feasible. This is consistent with the trust and reciprocity hypothesis. Although distributional concerns in some contributions can be traced, they are not nearly close to a preference for equal payoffs.

*Cartel Damages Claims and the Passing-On Defense

We develop a general economic framework for computing cartel damages claims. We decompose a direct purchaser plaintiffs lost profits from the cartel in three parts: the anticompetitive price overcharge (or cost effect), the pass-on effect and the usually neglected output effect. The pass-on effect is the extent to which the plaintiff passes on the price overcharge by raising its own price, and the output effect is the lost business resulting from this passing-on. To evaluate the relative importance of the three effects, we subsequently introduce various models of imperfect competition for the plaintiffs industry. We show that an adjusted passing-on defense (i.e. accounting for the output effect) is justified under a wide variety of circumstances, provided that suficiently many of the plaintiffs rivals are affected by the cartel. We derive exact discounts to the price overcharge, which depend on relatively easy-to-observe variables, such as the pass-on rate, the number of firms, the number of firms affected by the cartel, and/or the market shares. We finally extend our framework to assess the cartels total harm (on purchaser plaintifs and consumers), further demonstrating the crucial importance of the output effect. Our results are particularly relevant in light of the recent developments in U.S. and European antitrust policies.