Abstract

We study a major new entry in the French mobile telecommunications market, followed by the introduction of fighting brands by the three incumbent firms.

Using an empirical oligopoly model with differentiated products, we show that the incumbents’ launch of the fighting brands can be rationalised only as a breakdown of tacit collusion.

In the absence of entry the incumbents successfully colluded on restricting their product variety to avoid cannibalisation; the new entry of the low-end competition made such semi-collusion more difficult to sustain because of increased business stealing incentives.

Consumers gained considerably from the added variety of the new entrant and the fighting brands, and to a lesser extent from the incumbents’ price response to the entry.