Cooperation Among Competitors: Network Sharing Can Increase Consumer Welfare

Abstract

We investigate the effects of network sharing agreements between mobile network operators on prices and consumer welfare, taking also quality effects into account. Network sharing agreements allow multiple network operators to use the same physical infrastructure for the provision of mobile telecommunication services. While such cooperation should lower cost and thereby generate efficiencies, there may be concerns that such cooperation softens competition. We focus on the specific case of the existing network sharing between two operators in the Czech Republic. We first use a difference-in-differences method to show that, in a comparison with a sample of European countries, the network sharing agreement has reduced quality-adjusted prices. We then use a structural economic model to decompose the effect of the network sharing agreement. We find consumer gains both due to a higher implied network quality and reduced marginal costs of service provision. Our findings call for more empirical investigation on the relationship between competition and investment and on how cooperation agreements affect competition.