Competition in Turkish mobile telecommunication markets (the case of three firms in network industries)

Services that are based on telecommunication networks, which are crucial infrastructural elements of the information societies, have been gaining increasing attention as composing higher shares within the economies. However, economies of scale in the supply side and network effects in the demand side prevent these markets to be perfectly competitive, and to reach social welfare maximizing equilibria. Turkish mobile telecommunication services form the most competitive segment of overall telecommunication services in Turkey, where the competition process is dysfunctional in the fixed line services. Our study shows that access and interconnection agreements and network effects have been important instruments of the strategic interaction among the firms in the mobile telecommunications. The empirical findings of our study point out that competition in Turkish mobile telecommunication services is far from the socially desirable levels. Tariff variables show statistically insignificant effects within both time series and panel data regressions based on firm level data. This can be explained partly due to high switching costs and by lack of price competition due to high interconnection agreements among firms in the early periods, which might have let to tacit collusion in the retail markets. The empirical results also show that network effects are an important determinant of the growth of markets and market shares of the firms. However, these effects are significant only for firm level whereas insignificant in the market level. These results imply that the firms in Turkish mobile telecommunication markets are incompatible with each other and this leads the consumers to ?multihome? by using more than one network, in order to benefit from both micro and macro level network externalities. This hypothesis is also supported by panel data and survey data analyses within this study. Key Words: Industrial Organization, Firm Strategies, Turkish Mobile Telecommunication Markets, Network Effects, Regulation in Telecommunication Markets, Multinomial Logit Models, Panel Data.