A Model of Entry and Competition in Telecommunications

Liberalization in telecommunications has led to market competition even at local telephony level. This article deals with a competitor's decision to enter the market, with the later competition in prices, and with the consumers' decision to choose their provider. We assume a deregulated market with a credible theat of hard re-regulation in the case that prices go beyond a maximum cap. The government set this price cap before the enter occurs. The main result of this work refers to the fact that the new company will cover not above 40% of the market; meaning that potential entry and facilities based competiton will produce a market with companies of different sizes. We also find that the entry policy with asymmetric access charges, favorable to the entrant, would only increase the entrant's equilibrium coverage to the extent mentioned, a policy paid by consumers because prices increase in equilibrium. In terms of efficiency the assisted entry produce welfare loss for both consumers and society at large