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Title:	Asymmetric Regulation, Price Elasticity of Demand and Congestion
Authors:	許牧彥 Hsu, Mu -Yen 李淑華 Li, Shu - Hua
Contributors:	科管智財所
Keywords:	Asymmetric Regulation, Price Elasticity, Telecommunication Industry, Mobile phone service providers
Date:	2016-06
Issue Date:	2020-04-17 16:27:13 (UTC+8)
Abstract:	Asymmetrical regulation is aimed to limit the price-lift of significant market powers and prevent shrinking of consumer surplus. Therefore, the relevant literature of asymmetrical regulation implicitly neglected the theoretical possibility that firms might lower price to increase revenue when price elasticity of demand are larger than one. By studying a real case of Chung-Hwa Telecom (CHT), the largest mobile phone service providers in Taiwan, we estimated the price elasticity of residual demand faced by CHT and found it is larger than one. Therefore, it is reasonable for CHT to continually lower its price and extended its revenues from 2010 to 2013. Because the cost nature of telecommunication service provider is featured by high fixed costs with low variable costs, firms have the incentive to enlarge revenue and then maximize their profit. Unfortunately, lowered price induced more subscribers to share the limited capacity, then induce congestion of communication channels and reduce the quality of service. Our findings remind all the public utility regulators that price regulation should be coupled with quality control especially when price elasticity of demand is larger than one.
Relation:	The 21st ITS(International Telecommunications Society) biennial conference, International Telecommunications Society (ITS)
Data Type:	conference
Appears in Collections:	[Graduate Institute of TIPM] Proceedings

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