A Study of Bundling Pricing Strategy In An Oligopoly-The Case of Telecommunication Industry

• Main Authors: Shin-Yih Sheu, 許心怡
• Other Authors: Chun-Hsiung Liao
• Format: Others
• Language: zh-TW
• Published: 2001
• Online Access: http://ndltd.ncl.edu.tw/handle/89320752849813130641

碩士 === 國立成功大學 === 交通管理學系 === 89 === Since the licenses for Taiwan’s fixed-line telecommunication markets were deregulated in 1999, the telecommunication markets were completely liberalized and were brought in price mechanism. An oligopoly of three new entrants with the incumbent, Chunghwa Telecommunication Co., was formed. Telecommunication carriers produce multiple services in order to obtain joint production cost saving. My thesis, by constructing two-person multi-period games, studies the bundling pricing behaviors of telecommunication carriers. We consider a duopolistic market each firm producing two perfectly complementary services (e.g., local loop phone service and internet service provider service, ISP service). Their production technologies may have economies of scope. Each firm may employ one of the following three bundling pricing strategies：pure component pricing strategy, pure bundling strategy and mixed bundling strategy. Consumers have a Hotelling demand. We consider two price competition：Bertrand and Stackelberg (leader and follower). We focus our studies on the equilibrium bundling decisions of carriers and analyze the scales of social welfare. We further study the effects of quality differentiation of services, relative production efficiency and economy of scope on the equilibria. We obtain the following results： Supply Side：A more efficient joint production (i.e., there is an economy of scope) will increase the profit of the carrier. Also, a relatively efficient production to its rival’s (i.e., the firm has a lower production cost) will allow the carrier to charge a lower price for its services and increase its profit. Hence, multiple-service telecommunication carriers should introduce new technologies and devices to reduce their production costs. This will, in turn, make consumers pay a lower price for the services and increase their own profits. Demand Side：The quality differentiation of services between the two carriers’ is also an important factor on their profits. When the differentiation decreases (namely, the substitubility of the two carriers’ services increases), the price competition between carriers becomes more aggressive and hence, their profits decrease. Therefore, telecommunication carriers should be equipped with good technologies, provide high value-added services and build the brand name of their own. This will make carriers be capable of charging higher prices and increase their profits. Market equilibrium：Carriers adopt in equilibrium pure component pricing strategies, in either Bertrand or Stackelberg price competition, to avoid violent competition induced from mixed bundling strategies. Therefore, their best bundling strategies are to set individual prices for local loop phone service and ISP service, separately. Finally, we find that there is a conflict between profit-maximization of carriers and welfare-maximization. The reason is as follows. When carriers employ pure component pricing strategies, the availability of various service bundles for consumers decreases. This will damage consumer welfare. Therefore, it is necessary for regulator to intervene the telecommunication industry in order to protect consumer welfare.