A Paper by Yutec Sun published in the American Economic Review
“Market Entry, Fighting Brands and Tacit Collusion: Evidence from the French Mobile Telecommunications Market”, a paper co-authored by Yutec Sun, Assistant Professor of Economics at ENSAI and researcher at CREST, Marc Bourreau and Frank Verboven will be published in the forthcoming AER.
The American Economic Review is a general-interest economics journal. Established in 1911, the AER is considered as one of the Top 5 economics journals in the world.
“Fighting brands have long been taught in marketing and economics as an incumbent firm’s strategy to weaken the challenge of entrants with low price offerings. A few years ago, we faced a dilemma when analyzing the French mobile market, because the existing perspective could not explain why the recent entry propelled the major incumbent networks to engage in the fighting brand war with each other. Our main contribution lies in offering a novel insight on fighting brands supported by innovative data analysis method”, says Yutec Sun.
We study a major new entry in the French mobile telecommunications market, followed by the introduction of fighting brands by the three incumbents. Using an empirical oligopoly model, we find that the incumbents’ fighting brand strategies are difficult to rationalize as unilateral best responses. Instead, their strategies are consistent with a breakdown of tacit semi-collusion: before entry, the incumbents could successfully coordinate on restricting product variety to avoid cannibalization; after entry, this outcome became harder to sustain because of increased business stealing incentives. Consumers gained considerably from the added variety and, to a lesser extent, from the incumbents’ price responses.
Marc Bourreau: Professor of Economics at Telecom Paris, academic co-director of the CERRE, and a member of DGComp’s EAGCP
Yutec Sun: Assistant Professor of Economics, CREST-ENSAI
Franck Verboven: Professor of Economics at KU Leuven, Managing Editor of IJIO, Member of IO @ Leuven, Research Fellow at CEPR
Find out more about Yutec Sun and research at ENSAI.