A Study On Firms' Competition Strategies And Government's Regulation In China's Mobile Communications Market

Mobile communications is a typical networked industry and one of its most important characters is that the product or service in it exhibits strong network externalities. Because network externalities have great effects on the firms' development, the government's decisions and the economy's operation, the study on network externalities will help mobile communication firms to gain competitive advantage and help the government to improve its efficiency. Extending the models by Jeong-Yoo Kim (2000), this paper analyses the situation when an entrant firm adopts some technology to enter the market and competes with the incumbent firm. Network externalities will make the price competition between the entry and the incumbent more severe. However, compatibility between the products may ease the competition. Besides, product quality of the entry has an important effect on the decisions on price and compatibility. Applying these insights into China mobile communications market, we recommend four kinds of strategies: quality-based strategy, price-based strategy, expectation-based strategy, and installed bases-based strategy, through which the firm would have more chances to gain competitive advantage in the market.This paper also discusses the role that the government can play in the mobile communications market. The theories on network externalities and the development experiences of some countries' mobile communication industries indicate that market structures such as perfect competition and pure monopoly are not fit for the development of modern mobile telecommunication industries, and oligopolistic competition is needed to be introduced to the market. During this process, issues such as how to introduce competition in the market (some firms enter the market in the same time or sequentially), are affected by network externalities and play the key function in the future development of mobile communications market.The research methodology of this thesis is introducing some typical case studies in China's mobile telecommunications market and using industrial organization theories to analyze these cases.