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Considering Fixed-Mobile Convergence Service as a Two-Sided Market

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For FMC services, the platform provider is a telecommunications company that provides both fixed internet and mobile telephone services. The carrier determines its price structure, which consists of fixed internet and mobile telephony prices, to maximize joint profits. In Japan, the following providers offer both landline internet and mobile phone services: NTT, KDDI and Softbank.

2Previous studies have pointed out that landline and mobile services are two-way. We analyze the pricing structures of fixed-line Internet and mobile services for subscribers to both services. First, network effects and duality exist between fixed-line Internet and mobile services.

3In order to focus on three operators (NTT, KDDI and Softbank) that provide fixed Internet and mobile telephony services, we excluded CATV Internet users from the samples. Assuming constant marginal costs, ciF and ciM are the marginal cost of fixed Internet and mobile telephony, respectively. The margin between price and cost is lower in two-sided markets than in one-sided markets due to the network effect between fixed Internet and mobile services.

We then explain an estimation model that measures the two-sidedness between fixed internet (broadband) and mobile telephony services.

Estimation Results

Then, based on these marginal power values, we can draw equilibrium margins for fixed internet and mobile phone services. As expected, their monthly fixed price negatively affects the choice probability of mobile phone companies with 1% significance, and there is a network effect from fixed internet to mobile phones with 1% significance. For landline internet, an increase in NTT's landline internet price reduces its choice probability by 0.000041.

This is its own marginal effect of choice probability with its fixed Internet price. Increases in Softbank's and KDDI's landline Internet prices increase the choice probability of NTT's landline Internet service by 0.000027 and 0.000014, respectively. They are the cross-marginal effects of the choice probability of NTT's fixed-line Internet service with Softbank and KDDI's fixed-line Internet prices.

For mobile phone network effects, an increase in NTT's mobile phone share increases the probability of choosing NTT's fixed-line Internet by 0.68. This is his marginal probability effect of choosing NTT's landline internet with its mobile phone share. The increase in Softbank's and KDDI's mobile phone shares decreases the probability of choosing NTT's fixed-line Internet service by 0.45 and 0.23, respectively.

These are the cross-marginal effects of the choice probabilities of NTT's fixed-line internet with Softbank's and KDDI's mobile stocks. We are expected to see network effects exist between fixed line Internet and mobile markets. The own marginal effects of the network effects from mobile to fixed internet are and 0.37 for NTT, Softbank and KDDI, respectively.

The own marginal effects of the network effects from landline internet to mobile phone are and 0.22 for NTT, Softbank and KDDI respectively. This implies that NTT can easily gain market share via two-way network effects, as it has the largest market shares in both the fixed-line Internet and mobile phone markets. KDDI's fixed-line Internet market share is so small that its network effect from mobile phone to fixed-line Internet is not effective.

Discussions

It is interesting to examine how network effects vary across platforms (NTT, Softbank and KDDI). The network effect term is so small that the difference in price is quite small if we consider the two-sidedness. The network effect period is so large that the difference in price is huge if we consider the two-sidedness.

The network effect parameter from fixed line internet to mobile is small, while the margin is small for a mobile user; therefore, it is less profitable to get fixed line internet users by lowering the price. Conversely, the network effect parameter from mobile to fixed-line Internet is large, while the margin is large for fixed-line Internet users;. This difference between the fixed line internet and mobile margins is the result of the duality of FMC service.

Since NTT has the largest market shares in both the fixed internet (particularly FTTH) and mobile telephony markets, NTT strategically sets its margin higher in the fixed internet market and lower in the mobile telephony market, in order to increase its maximize total revenue. making a profit by subsidizing the relatively unfavorable market (mobile phones). Similarly, Softbank subsidizes its mobile phone markets with fixed internet, and KDDI subsidizes its fixed internet with mobile phones. The actual price-cost margin levels of fixed Internet and mobile phones are much lower than those calculated from the estimation results, and thus the carriers do not significantly subsidize the relatively disadvantageous markets with the relatively advantageous markets.

Therefore, NTT is strictly regulated to open up its essential facilities (including optical fiber) to competitors, and it cannot freely set profit-maximizing prices by considering bilateralism. Next, to promote competition in the telecommunications industry, NTT is structurally unbundled under the holding company system and is prohibited from doing business jointly within group companies; it cannot freely determine a profit-maximizing pricing structure by considering duality (eg between fixed-line Internet and mobile services). Second, as mentioned above, the carriers cannot freely determine their price structures by considering bilaterality due to Japan's strict competition policy, but we expect that radical changes in price structure will occur if the carriers are allowed to set prices freely.

NTT will increase its price and cost margin in the relatively favorable fixed-line Internet market (to JPY 15,236, USD 152) and decrease it in the relatively unfavorable mobile phone market (to JPY 1,027, USD 10 ); the total level of price-cost margin becomes 16,263 JPY (163 USD), which is very high compared to the price-cost margins of its competitors. NTT, which has an overwhelming market share in the fixed-line Internet market, has a big advantage over Softbank and KDDI. NTT's dominance is expected to increase in the future due to network effects of bidirectionality.

Conclusions

1983) Limited-Dependent and Qualitative Variables in Econometrics, Cambridge University Press. 2009) "Symposium on Advertising and Disclosure: Two-Way Markets with Money and Participation Externalities," Journal of Industrial Economics 57: 32-57. The most elastic side of the market generates maximum demand by offering it platform services at the lowest price What is the connection in two-way markets in payment card associations through so-.

On the one hand, one network is cheaper and larger, while the other network is cheaper and larger. What happens if agents value the presence of agents of the other type, but negatively value the presence of the agents. Magazines have characteristics of two-sided markets, which implies that there is a greater demand in the market. the reader side increases ad rates, but the increased demand on the ad side decreases.

A comparison between graded notes and observed notes shows evidence of. Joint profit maximization in the newspaper's cover price, but the advertising market is.

Table 1: Examples of two-sided markets
Table 1: Examples of two-sided markets

Table 1: Examples of two-sided markets
Table 2 :   Socio-demographics
Table 3  Fixed-line Internet market share (a) Type of Internet access line
Table 4: Fixed-line broadband usage
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