Economies of scale and diversification: Understanding the evolution of the mobile telecommunications market

Abstract

This paper proposes the concept of a superadditive profit function, which can lead to diversification of firms’ business portfolio. The superadditive profit function concept includes economies of scope as well as superadditive revenue function. This paper explores bundled consumption of telecommunication services and illustrates the impact of growing data traffic on the economies of scale in the telecommunications industry by using a firm’s data. In order to illustrate average cost curves, a pseudo subscriber number concept is proposed and used in this paper. Growing data traffic does not seem to have increased the cost of capital significantly over the past few years in Korea.