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

Please use this identifier to cite or link to this item: https://doi.org/10.48548/pubdata-1163

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Field	Value
Resource type	Working Paper
Title(s)	A Revised Theory of Contestable Markets: Applied on the German Telecommunication Sector
DOI	10.48548/pubdata-1163
Handle	20.500.14123/1226
Creator	Growitsch, Christian 12443357X Wein, Thomas 0000-0001-7443-3253 170739767
Other contributors	Universität Lüneburg / Fachbereich Wirtschafts- und Sozialwissenschaften
Abstract	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.
Language	English
Keywords	Wirtschaftspolitik; Telekommunikationsmarkt
DDC	330 :: Wirtschaft
Year of publication in PubData	2002
Publishing type	First publication
Publication version	Draft
Date issued	2002-10-09
Creation context	Research
Faculty / department	Frühere Fachbereiche
Alternative Idenfier(s)	urn:nbn:de:gbv:luen4-opus4-2487
Date of Availability	2024-08-23T07:46:07Z
Archiving Facility	Medien- und Informationszentrum (Leuphana Universität Lüneburg 02w2y2t16)
Published by	Medien- und Informationszentrum, Leuphana Universität Lüneburg