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[7] demonstrates that the HHI associated with
the profitability of the firm represents the level
of competition in the market. HHI is the sum of
the squares of the market shares of enterprises
in a market. If the HHI is at 10,000, the market
is monopolistic (only one enterprise). Low HHI
value indicates that the market is highly
competitive. High HHI value indicates the low
level of competition
and high level of
monopoly in the market. The value of HHI
below 1,000 deems there to be no significant
market power in a given market [3].
Due to its usefulness and simplicity, HHI is
calculated in many studies of competition. The
US Department of Justice has used the HHI in
antitrust investigations in cases of merger
consolidation [4]. [8] uses HHI to investigate
the concentration level of India mobile market
and concludes that the market is highly
fragmented where many operators are under
10% subscriber market share. [9] indicates high
HHI of Ghana telecommunications market
suggesting
that
the
market
is
highly
concentrated
and
not
competitive.
[10]
examines by an empirical study the relationship
between HHI and
earning of dominant players
in the telecommunications markets of Middle
East and Africa countries. [11] provides an
revision- an interval estimate- for HHI when the
knowledge about the market is incomplete.
Actually, these indicators are useful, but
researchers and policymakers still cannot
determine exactly at which benchmark of HHI
the market is supposed to be effectively
competitive [3, 12].
[1, 13] and [14] and many other studies
estimate the price elasticity of demand and
supply to evaluate market competition and
examine whether the largest enterprises are able
to unilaterally increase
prices in the market
while still maintain the demand for some
services. Price elasticity of demand reflects the
responsiveness, or elasticity, of the quantity
demanded of a good or service to a change in its
price. If the demand curve is less elastic, service
consumers are unlikely to give up the service
even though the prices may increase. This
means that the business obviously has the
market power. Hakim and Neaime [15] argues
that if demand for telecommunications services
is less elastic, firms have
an incentive to collude
on the market. However, the elasticity of
demand indicates only the ability of the firm to
conduct non-competitive behaviors; the actual
abuse of the market power is not reflected
clearly by the price elasticity of demand.
Empirical studies on demand elasticity
require much of data. There are two different
approaches of such studies. The first approach
is based on secondary data either highly
aggregate data on the whole market and/or
firm-specific data. The second approach uses
primary data through surveys of consumers’
behavior. Hausman [16], for example, uses data
from 30 markets in
the United States between
1988 and 1993 and finds a price elasticity of
mobile service access of -0.51. The UK
Competition Commission [17], summarizing
the various research results, reports the price
elasticity of demand for subscription ranging
from -0.08 to -0.54 and price elasticity of
demand for mobile originated call from -0.48 to
-0.62. Grzybowski [18] applies structural
models to study the competitive behavior of
mobile operators
with data from EU countries
in the period of 1988-2002. Research results
show the price elasticity of demand for mobile
services between -0.2 and -0.9.
Telecoms regulatory bodies use HHIs and
price elasticity of demand to decide forms of
regulation [4, 19]. TATT [19] specifies that
price elasticity analysis is an essential step
taken to identify market dominance in Trinidad
and Tobago. Jamison et al. [4] studies three
cases of telecoms competition in the US, UK
and Japan. In the case of examining the level of
competition in the long-distance telephone
market where AT&T
dominated the market
share, the FCC measured factors including (1)
AT&T's market share and market trend, (2)
price elasticity of supply for services to
determine competitor's service substitution for
AT&T's services, (3) price elasticity of demand,
D.T.V. Duc, N.P. Hung / VNU Journal of Science: Policy and Management Studies, Vol. 33, No. 2 (2017) 21-29
24
and (4) cost structure, the size and resources of
AT&T and its competitors. As a result, in 1993,
the FCC decided that AT&T was not a
dominant player in the market, despite the fact
that AT&T's market share in the long-distance
voice market in 1994 was still 55.2% in revenue
and
58.6%
in
call
traffic.
The
telecommunication
regulatory body of UK,
Ofcom, also used market share, price elasticity
of supply and demand to conclude that
Vodafone, O2, Orange, T-Mobile and H3G are
players with significant market power in the
mobile call termination market. Then Ofcom
took some control of the price of mobile
termination services from April 1, 2007 to April
1, 2011.
However, there are some complexities
involved in the estimation and use of the
information of price elasticity of demand. These
include the change of
price elasticities as the
prices themselves change, the difference of
long-run and short-run elasticities of demand
for goods and services of which consumers
display some inertia, the problems associated
with estimation of demand curves where market
equilibria in supply and demand are observed
points. (see [20]). All these complexities are
evidently
relevant
to
the
market
for
telecommunications services.
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