A Revised Theory of Contestable Markets : Applied on the German Telecommunication Sector

  • Despite the scepticism raised by the German Monopoly Commission our analysis shows that the revised theory of contestable markets can be applied to the telecommunications market better than expected. The original contestable market theory implied three assumptions necessary to be satisfied to establish potential competition: Free market entry, market exits possible without any costs, and the price adjustment lag exceeds the entry lag. Our analysis shows that if the incumbent reduces its prices slowly (high adjustment lag) and the market entry can be performed quickly (low entry lag), a new competitor will be able to earn back sunk costs. Therefore it is not necessary that all three conditions are complied with for potential competition to exist. We applied the 'revised' contestable market theory to the German telecommunication market and have been able to clearly identify the sections in which regulation is required. Under the present conditions local loops - which should be seen as natural monopolies - are not contestable due to sunk costs, high entry lags expected and a probable short price adjustment lag. Local loops can be identified as bottlenecks therefore. Regional and local connection networks should also be regulated because a high entry lag and a low price adjustment lag have to be expected as well as current competition does not exist today. The national connection network shows current competition between several network providers, hence regulation can be abolished in this field. Moreover, services can be supplied by several firms, and we predict strong potential competition.. There are no arguments favouring a natural monopoly in the section of terminals.

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Metadaten
Author:Christian Growitsch
URL: https://pub-data.leuphana.de/frontdoor/index/index/docId/248
Document Type:ResearchPaper
Language:German
Year of Completion:2002
Date of Publication (online):2002/10/09
Creating Corporation:Wein, Thomas
Release Date:2002/10/09
GND Keyword:Wirtschaftspolitk; Telekommunikationsmarkt
Source:Lüneburg, Univ., Fachbereich Wirtschafts- und Sozialwissenschaften, Arbeitsbericht Nr. 275 , ISSN 0176-7275
Institutes:Universität / Frühere Fachbereiche
Dewey Decimal Classification:0 Informatik, Informationswissenschaft, allgemeine Werke / 00 Informatik, Wissen, Systeme / 000 Informatik, Informationswissenschaft, allgemeine Werke