What do we know about duopolies? Insights from the history of cellular phones

Abstract

Abstract 1 The theoretical literature on duopolies—the Bertrand and Cournot models and their variants—generates a range of predictions for equilibrium prices and quantities depending on assumptions. Here we compare behavior in cellular-network services across countries in the 1980s and early 1990s. We study transitions from monopoly to duopoly and from duopoly to oligopoly with more than two competitors. Through comparisons across countries and time periods, we isolate factors that explain why duopolistic competition had a larger impact on prices in certain markets than in others. Among other things, we find that two institutional factors played an important role: the way beauty contests for additional licenses were designed and whether duopolists expected additional entry into the network-services market or not. • We analyze subscription price trends in Sweden, Britain, the United States, Germany, and Israel. • We study the impact of duopolistic competition on subscription prices during the 1980s and early 1990s. • We identify factors that explain why duopolies had a larger impact on prices in some markets than in others.