Market Structure and Investment in the Mobile Industry

The impact of market structure on investment is an important topic in the mobile industry. However, previous literature remains ambiguous about the direction of the relationship. This paper takes advantage of the exogeneity of the number of mobile operators to investigate its impact on investment, taking into account market share asymmetry and the adjustment cost of investment. The empirical analysis is backed by a theoretical model that introduces vertical differentiation in a Salop model. Consistently with the prediction of this model, we find that investment per operator falls with the number of operators. This negative effect is bigger for smaller operators. The industry investment tends to rise with the number of operators in the short run, but eventually falls in the long run, due to significant adjustment cost of investment in the mobile industry. These findings suggest that investment is an endogenous variable that should be taken into account when analyzing the welfare effects of entry and mergers in mobile markets