Market efficiency analysis of mobile virtual network operator policy

Abstract

There has been a great deal of controversy over the introduction of the MVNO (Mobile Virtual Network Operator) policy-a type of service-based competition policy-to the Korean mobile telecommunications market. This paper attempts to analyze the ripple effect of MVNO regulation and presents desirable ways of implementing the policy. Based on the Laffont, Rey and Tirole (1998) and Armstrong (1998) model, a theoretical MVNO model is defined and derived implications on price and quantity in the market are presented. According to the model, the fact that MNOs have one-way access profit leads to static efficiency by lowering their market price. In regard to the most desirable way to enhance social welfare, it is revealed as more desirable for two MNOs to conduct MVNO" rather than "one MNO" or a "structurally divided network."