Limit Pricing through Price Discrimination: A Theoretical study among Telocommunication Companies in East Africa Hillary Ekisa Nambanga

Limit Pricing through Price Discrimination: A Theoretical study among Telocommunication Companies in East Africa

Author (s)

Hillary Ekisa Nambanga

Abstract

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Limit pricing, which Competition Authorities view as anti-competitive and illegal, is an interesting issue in industrial organization. This is a case where firms with market power charge a price that is lower than their operational cost in order to prevent the entry of new potential competitors or drive out their smaller competitors out of business. This research paper examines limit pricing theoretically among telecommunications companies in the East African Community. The Community has experienced a consistent drop in mobile network service prices since the year 2000 with the smaller mobile network operators blaming their dominant counterparts for initiating these price cuts. These dominant firms are former monopolists who price discriminate between their two tariffs, the pre-liberalization (former monopoly) and post-liberalization (competitive), with a majority of their mobile subscribers still registered under their expensive pre-liberalization tariffs that have high switching costs compared to the competitive tariffs. The paper analyses limit pricing within an oligopoly framework involving a price discriminating dominant incumbent, a fringe (smaller) competitor and a potential entrant in a sequential three-stage game of price competition under complete information. The theoretical results show that the dominant incumbent can profitably use its pre-liberalization tariff price to deter market entry and force its smaller competitors out of business. These results have public policy implications for the East African Competition Authority and other policy makers. These should consider regulating the pre-liberalization tariffs among dominant firms thereby reducing their influence on pricing in order to enhance fair competition among firms in the market.

 Keywords: Price discrimination, Limit Pricing, Complete information, dominant firms, entry deterrence.

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Title:

Limit Pricing through Price Discrimination: A Theoretical study among Telocommunication Companies in East Africa

Author: Hillary Ekisa Nambanga
Journal Name: International Journal of Science and Business
Website: ijsab.com
ISSN: ISSN 2520-4750 (Online), ISSN 2521-3040 (Print)
DOI: https://doi.org/10.5281/zenodo.4409617
Media: Online
Volume: 5
Issue: 1
Acceptance Date: 08/12/2020
Date of Publication: 02/01/2021
PDF URL: https://ijsab.com/wp-content/uploads/655.pdf
Free download: Available
Page: 57-66
First Page: 57
Last Page: 66
Paper Type: Research Paper
Current Status: Published

 

Cite This Article:

Hillary Ekisa Nambanga (2021). Limit Pricing through Price Discrimination: A Theoretical study among Telocommunication Companies in East Africa. International Journal of Science and Business, 5(1), 57-66. doi: https://doi.org/10.5281/zenodo.4409617

Retrieved from https://ijsab.com/wp-content/uploads/655.pdf

 

 

About Author (s)

Dr. Hillary Ekisa Nambanga , School of International Trade and Economics, University of International Business and Economics (UIBE), Beijing, China.

 

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DOI: https://doi.org/10.5281/zenodo.4409617

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