Notes:
Dependent variables: Log [Prob(move type X)/Prob(move type Y)]. where move types are: infrastructure, promotion, and service.
Standardized coefficients reported.
N=199 observations (strategic actions).
Results control for 12 country dummy variables (coefficients not shown). w, , and represent significant results at 0.10, 0.05, and 0.01 confidence level respectively.
Concentration, PenetrationConcentration Interaction, and Period (time dummy variable), plus a set of country dummy variables representing the 12 countries. The two sets of regressions below repeat first the analysis for promotion-related actions and afterwards for infrastructure-related actions.
There is modest evidence of the effect of market penetration on the type of strategic action that phone operators take in the market. As Hypothesis 4 suggested, firms focus on providing more services on top of the network when market penetration is greater. The likelihood of a strategic action being related to service provisioning (rather than to promotion or infrastructure) increases with market penetration although the results are only significant at the 0.1 level. In markets with high penetration, the layering of new services becomes relatively more important as a way of competing. Firms no longer focus on setting, promoting and expanding the network, but concentrate instead on the layering of new services. In our opinion, despite the explosion of the mobile phone industry in Europe during the studied period, the results could be expected to be stronger in terms of significance if a longer sample with greater variance in market penetration were used.
There is also evidence in favor of Hypothesis 5. As expected, greater concentration reduces the likelihood that firms will focus their strategic actions on promotionrelated activities, which may trigger retaliation. In markets with one or two dominant firms, phone operators turn their attention to service-related actions and, to a lesser degree, to infrastructure activities. It should be noted that mobile phone markets are all very concentrated, frequently involving two or three operators only. Only when there are several firms of similar relative size one would expect to see firms focus on promotional activities as a predominant way of competing.
As Exhibit 3 reveals, Hypothesis 6, based exclusively on an evolution-over-time perspective is not supported. Infrastructure moves are not more likely to occur at an earlier stage than either promotion or service moves. Thus, the evidence does not comply with the idea that phone operators first build their network infrastructure and, later, promote the network and provide services. Infrastructure-, promotion-, and service-related actions all seem to be taken more or less concurrently.
Overall, the above results provide clear support regarding the expected nature of competitive dynamics in the European mobile phone industry. Of our six hypotheses three received strong confirmation, two received moderate support, and only one yielded insignificant results. By and large, the evidence supports the argument that industry context determines firm behavior, including the competitive and cooperative actions that firms take in the market with regard to their primary activities. How firms behave in the market can be explained to some extent by the level of industry penetration and concentration, and the evolution over time. These factors drive the amount of rivalry, the likelihood of cooperation, and the type of strategic actions taken by firms in the mobile phone industry, as reported in Section 6 above. In particular, we investigated under what circumstances cooperative moves are more likely to occur in network-based industries. Our findings are that their likelihood increases with concentration and with greater penetration, and diminishes with time. It is important to note that, in order to understand fully the competitive and cooperative behavior of phone operators, we have had to account explicitly for the effect of market externalities.
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