PavonVictor - Pavn-Villamayor Convergente-based Entry &...

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Pavón-Villamayor Convergence-based Cross Market Entry: Welfare & Implications for Competition Policy Víctor Pavón-Villamayor Senior Economist OECD-ITAM Expert Group in Regulatory Reform, Mexico Competition Policy Director, Gabinete Económico, Mexico ABSTRACT This paper uses a simple two-period game-theoretic analytical framework of cross market entry with firm-specific and “spillover” innovation to discuss some of the economic implications of digital convergence. The analysis identifies the whole set of possible equilibria in order to characterize the two main patterns of technological diffusion: continuous and fragmented. Continuous diffusion occurs when a firm always operates on the edge of its technological frontier. In contrast, fragmented diffusion occurs when a firm might not find optimal to operate all the time on this frontier. The impacts of these two different patterns of technological diffusion on standard measures of social welfare are also discussed in the context of the trade-off between the duplication of fixed costs and the benefits that cross market entry brings in terms of aggregate innovation. The analysis shed light on the trade off between socially efficient cross market entry by a dominant operator and competition policy distortions. Keywords Digital convergence, entry, competition policy, innovation, technological diffusion. BIOGRAPHY Ph. D. Economist (Oxford) with areas of expertise in competition policy and regulation. He has been official for the Mexican Telecommunications Commission and consultant in competition policy for LECG (Brussels). Currently, he is Senior Economist on Regulatory Reform in a joint project between the OECD, ITAM and the Mexican Government. INTRODUCTION Historically, telecommunications has been perceived as an industry mainly devoted to the provision of voice communication. As a consequence, telecommunications was usually treated differently from other related industries such as data communication or broadcasting. During the last decade, however, improvements in Internet-based technologies have increased the substitutability between packet- and circuit-switching data transmission which has dramatically changed the general landscape in the industry. On the one hand, packet-based data transmission has proved to be an effective substitute for analogue transmission in most of the services provided by telecommunications operators. On the other hand, recent technological improvements have also broadened the service capabilities in the cable industry, in which the joint supply of Proceedings of the 3 rd ACORN-REDECOM Conference Mexico City May 22-23 rd 2009 1
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Pavón-Villamayor television, voice and data services have become the standard service. The blurring of the market boundaries that stems from improvements in digital transmission technologies has recently been described as a process of digital convergence.
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This note was uploaded on 01/22/2010 for the course ECO 1101 taught by Professor Sparr during the Fall '05 term at St.Francis College.

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PavonVictor - Pavn-Villamayor Convergente-based Entry &...

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