Hypothesis 4. The addition of new service layers is more likely in markets with high penetration.
Firms have a greater incentive to promote their services in network markets that are not yet consolidated (Katz & Shapiro, 1994). The potential payoff from a dominant position are is considerable, if network externalities can be internalized, e.g. through price discrimination or service differentiation, in a consolidated market. In other words, firms in highly concentrated markets are less likely to engage in promotion actions, and more likely to focus on the provision of new services and possibly making the necessary extension of their infrastructure in order to increase capacity. We expect more ‘‘promotion actions’’ and reactions in markets with a low level of concentration. Further, empirical research on the airline industry found that firms are more likely to retaliate against price actions and other similar promotionrelated actions (Chen & MacMillan, 1992). In other words such types of strategic actions are likely to be countered swiftly and directly. Hence it is reasonable to expect a relatively greater number of promotional moves in low-concentration telecom markets where no firm enjoys undue dominance.
Hypothesis 5. Promotion actions are more likely in markets with low concentration.
In heavy-asset industries, firms have to make investments in basic infrastructure at an early stage. Given the importance of building a strong position quickly in an industry dominated by scale economies, firms need big up-front investments to accelerate the adoption of their technology and to pre-empt rivals (Katz & Shapiro, 1986). In the case of the mediating industries, firms have to invest large sunk costs in creating capacity in anticipation of their future contract sets. These infrastructurerelated strategic actions include investment in facilities and equipment, as well as operating licenses. This sort of action in anticipation of usage is made, when the industry is still in the early stages. As time passes, infrastructure-related moves can be expected to become less common and firms begin to focus more on promoting their already-established network and the layering of new services on top of it.
Hypothesis 6. Infrastructure-related actions are more likely in the early years of the network industry.
The mobile phone industry was chosen for this study for several reasons. First, it is an emblematic example of a value network industry in which firms provide mediating services to their customers. In this industry we should be able to observe clearly the strategic actions that mediators take to build their position in the market. Second, in the course of the last few years the industry has been developing and has achieved a substantial size in several European countries, which allows us to study the way competitive behavior varies over time and across markets with different characteristics. Finally, since the beginning, the competitive dynamics of this industry have received exceptionally good press coverage due to the importance of the industry in terms of investment, its implications for national infrastructures, and its regulated nature and presumed public-information transparency.
Data on strategic actions was collected from the European Communication Newsfile (ECN), a 16-page newsletter covering the European and global telecom industry that is published twice a month by CIT Publications Ltd., London. This company has specialized in international communications research and analysis for the last 15 years and its newsletter is a crucial source of information for major telecommunication equipment manufacturers, service providers, and industry consultants. ECN provides summaries of news articles about the full range of telecom services, including fixed line, mobile, satellite, cable, and corporate networks. Besides the latest industry developments, the newsletter also provides detailed analyses of various sectors of the industry, as well as market reports, company profiles and in-depth treatment of the key technical and competitive issues in telecommunications.
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