After the launch of PCS in 1997, price competition between five mobile carriers was so severe that the Korean mobile telephony market achieved a remarkable subscriber base growth. But in that optimal pricing behavior depends on how competitors are likely to react to their firm's choice of price, it is very interesting to analyze competitive pricing behavior and understand market structure in terms of pricing competitiveness in the Korean telecommunications market.
In this paper, we use structural econometric models in the New Empirical Industrial Organization (NEIO) framework because they allow us to estimate not only the demand and cost functions of markets, but also the competitive interactions among firms. But previously used models in this framework generally assume the linear demand specification that is difficult to analyze markets with many products and though using logit model, they assume that market size is fixed and that all firms maximize their profits. To fit in with the Korean mobile telecommunications market, we derive various models in using MNL market share model under the assumptions that market size varies with industry's total attractions and that firms maximize their market share. After Russell and Bolton(1989), the aggregate constant ratio elasticity pattern(ACREP) that is derived by MNL market share model has been often used in order to understand market structure based on cross elasticity. But in that ACREP model can not consider competitive reactions among competitors, we suggest new cross elasticity measure considering competitive pricing behavior and apply this to map market structure of the Korean mobile telecommunications market.
The structural analysis of competitive pricing behavior and market structure in the Korean mobile telephony market finds that the model under market share maximization with the assumption that market size varies with industry's total attraction shows the best fitting results and cross elasticity measure considering competitive pricing reactions represents market structure of the Korean telecommunications market well.
