Political Determinants of Competition in the Mobile Telecommunication Industry
We study how political factors shape competition in the mobile telecommunication sector. We show that the way a government designs the rules of the game has an impact on concentration, competition, and prices. Pro-competition regulation reduces prices, but does not hurt quality of services or investments. More democratic governments tend to design more competitive rules, while more politically connected operators are able to distort the rules in their favor, restricting competition. Government intervention has large redistributive effects: U.S. consumers would gain $65bn a year if U.S. mobile service prices were in line with German ones and $44bn if they were in line with Danish ones.
We gratefully acknowledge financial support from the Stigler Center at the University of Chicago Booth School of Business. We also thank Sara Bagagli and Andrea Hamaui for their excellent research assistance and several participants at seminars at Emory University, Purdue University, the 2016 Global Corporate Governance Colloquia in Stockholm, Tsinghua University, the University of Michigan, the University of Chicago, Wayne State University, and at the 2016 Dawn or Doom Conference at Purdue University for comments. We thank John Fassnacht and Samodya Abeysiriwardane for developing the C# parsing program that was used to identify political connections. We also thank DotEcon for sharing their spectrum auction data. Luigi Zingales was an independent board member of Telecom Italia from April 2007 to April 2014. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.