Review of Industrial Organization (2005) 26: 89–113 © Springer 2005
Entry, Standards and Competition: Firm
Strategies and the Diffusion of Mobile Telephony
and TOBIAS KRETSCHMER
London School of Economics, and ETLA, L
onnrotinkatu 4 B, 00120 Helsinki, Finland.
London School of Economics, Houghton Street, London WC2A 2AE, UK.
Abstract. This paper studies the effects of a country’s regulatory setting and competitive
environment the performance of second-generation (2G) mobile on telecommunication. We
consider three dimensions of sector performance: entry time, service prices and diffusion.
We address the question of non-random selection arising from cross-country differences in
the timing of the commercialization of new technologies. Our empirical exploration shows
that this type of sample selection may indeed be a substantial problem in cross-country
studies on technology diffusion and yield biased estimates of the policy variables of inter-
est. Our estimation results suggest that standardization accelerates 2G entry and diffu-
sion, although within-standards competition triggers less aggressive price competition than
between-standards competition. We also ﬁnd that an early monopolist will price more
aggressively to build up an installed base. Furthermore, we ﬁnd that liberalizing markets
for incumbent technologies (i.e., ﬁxed line telephony) has accelerated the commercializa-
tion of 2G.
Key words: competition, diffusion, mobile telephony, pricing, standardization.
JEL Classiﬁcations: L1, L52, O38.
Telecoms regulators faced two crucial decisions in the context of introduc-
ing second generation (digital) mobile telecommunication (2G): whether to
allow competition between technologies and/or within technologies. The ﬁrst
decision corresponds to selecting a technology standard, the second is about
issuing licenses to multiple operators. Our paper studies the effect of both
these decisions on the evolution of the 2G mobile industry along three
Author for correspondence: London School of Economics, Houghton Street, London
WC2A 2AE, UK. Tel: +44-20-7955-6041; Fax: +44-20-7955-6887; E-mail: t.kretschmer