Oligopoly Games in Cellphone Service

TRUDEAU MINISTER SAYS CANADA'S CELLULAR PLANS ARE TOO EXPENSIVE

Bloomberg News

June 5, 2017

Canada's Liberal government is picking a fight with the country's telecommunications giants.

Internet and cell services still aren't available for many rural and low-income Canadians, and prices are higher than in other developed countries, Innovation Minister Navdeep Bains said in a speech at the Canadian Telecom Summit on Monday.

"Access isn't the only challenge, the bigger barrier is price," Bains said. "The digital divide is unacceptable." ...

Rogers Communications Inc., Telus Corp. and BCE Inc. still own more than 90 percent of the wireless market and dominate television and Internet service across the country. Prices, especially for cellphone service, are generally higher than in Europe and the U.S. Carriers argue this is because Canada, with a small population spread over a massive area, demands larger and more expensive infrastructure investment to maintain network quality.

Bains ordered the country's telecommunications regulator to review its recent decision that allows wireless network owners to refuse access for smaller companies that don't have their own cell towers in a certain geographic area.

That decision effectively shuts down prospects for companies like Sugar Wireless, which mostly uses wi-fi service to connect its users and pays to roam on other networks when wi-fi isn't available. It's a model that's been employed with success in the U.S. by firms such as Republic Wireless.

After you have studiedEconomics in the Newson pp.344-345, answer the following questions.

1. What are the strategies of Rogers, Bell, and Telus in the market for cellphone service?
2. If Rogers, Bell, and Telus played a one-shot game, how would the outcome be different?
3. Why is a tit-for-tat punishment strategy needed to get the firms out of a prisoners' dilemma?
4. How would you expect the entry of a fourth big player, such as U.S. Verizon, to change the game and its outcome?