Price competition and the Bertrand model: the paradox of the German mobile discount market

ABSTRACT

We investigate the degree of price competition among telecommunication firms. Underlying a Bertrand model of price competition, we empirically model pricing behaviour in an oligopoly. We analyse panel data of individual pricing information of mobile phone contracts offered between 2011 and 2017. We provide empirical evidence that price differences as well as reputational effects serve as a signal to buyers and significantly affect market demand. Additionally, we find that brands lead to an increase in demand and thus are able to generate spillover effects even after price increase.

KEYWORDS:

• Bertrand market
• price competition
• telecommunication market
• normal goods

JEL CLASSIFICATION:

• B21
• C31
• C33
• L11

Acknowledgment

The authors thank Impli iMPLI Informations-Systeme GmbH for their help in securing access to some of the data examined in the paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was partially supported by the German Research Foundation (DFG) within the Collaborative Research Centre “On-The-Fly Computing” [SFB 901].