Coll. with Ryan Hawthorne
Abstract: South Africa is the most unequal society in the world. An important means of reducing inequality may be through lower prices for services used by low-income consumers. We test for the distributional e˙ects of regulation and entry in the mobile telecommunications sector using six waves of a consumer survey of over 134,000 individuals over the years 2009-2014. First, we estimate a discrete-choice model allowing for individual-specific price-responsiveness and preferences for network operators. Next, we use a demand and supply equilibrium frame-work to simulate prices and the distribution of welfare without entry and in the absence of mobile termination rate regulation. We find that regulation benefits consumers significantly more than entry does. While all consumers benefit from entry and regulation, high-income consumers benefit more in terms of increased consumer surplus. At the same time, entry and regulation result in a greater increase in mobile penetration among poor consumers than among rich consumers. Our results suggest that the benefits from entry need to be spread to more low-income, rural areas such as by governments imposing network coverage obligations on licensees.
Keywords: Mobile telecommunications; Competition; Entry; Discrete choice; Inequality
JEL Classification: L13, L40, L50, L96