Spectrum limits and competition in mobile markets: the role of licence fees

The paper discusses the impact of scarcity of frequency spectrum on the per formance of the mobile telecommunications industry. An oligopoly model with endogenous sunk costs illustrates the trade off between ex ante extraction of oligopoly rents and market entry of firms. The determination of the lic ence fee through an auction provides scope for setting market structure end ogenously: the higher the licence fee, the lower the number of firms sustai ned by the market. High licence fees may be a signal for post-entry collusi on. Differences across national regulatory frameworks with respect to the c onditions for allocation of spectrum licenses may induce problems of fair c ompetition in an integrated market. (C) 2001 Published by Elsevier Science Ltd.