Merger Simulation in Mobile Telephony in Portugal

Abstract

This article assesses the unilateral e ects on prices of a merger in the Portuguese mobile telephony market. We use aggregate quarterly data from 1999 to 2005 and a nested logit model to estimate the price elasticities of demand and the marginal costs of subscription of mobile telephony. Given these estimates, we simulate the e ects of the merger. We nd that the available mobile telephony subscription products are close substitutes. The merger may cause substantial price increases, even in the presence of large cost e ciencies. On average, prices increase by 7% without cost e ciencies, and by about 6% with a 10% marginal cost reduction.