Fixed-to-mobile call substitution and telephony market definition in Korea

Abstract

An appropriate market definition is critical in most antitrust cases. In practice, antitrust authorities define economic markets in a deterministic manner with little concern about the risk involved in defining markets incorrectly. In contrast, this article proposes a probabilistic market definition method by which antitrust authorities can establish a statistical confidence level for their intended market-definition judgments. As an application, we examine the likelihood that the fixed-line and mobile telephony services in Korea can compete in the same economic market. Combining critical loss analysis with a hierarchical Bayes model for stated preference data, we find some evidence for the separation of the fixed-line and mobile telephony markets in present-day Korea. After discussing certain possible regulation biases for market definition, we predict that the two markets will converge in the near future as the mobile price premium continues to decrease.