Tuesday, September 7, 2010

Goverment Policy & Competition

In a fascinating article about the Mexican telephone industry, we see a great example of how government policy can promote competition. Given (at the time the article was written) that Telemex and Telecel each have over 70% of the fixed-line and mobile telephone market in Mexico, there are slow reductions in market share of these two firms in part due to cable TV competition, and in part due to changes in government policy.

Of the changes that are most important are the reduction of switching costs to consumer (phone number portability) and the increase in network effects for telephone providers through interoperability and interconnection with competitors.

Many times economists seem to emphasize the problems of government policy; but here is a reminder of the importance of government policy towards fostering greater competition in the marketplace.

No comments: