Testing for supergame behavior in the cellular telephone industry

Models of differing degrees of complexity have been developed in industrial organization to analyze the strategic non-cooperative behavior of oligopolistic firms. The simplest models assume there are two firms producing a homogenous product with no threat of entry. A problem in testing these models is to find industries that satisfy the assumptions made in theory. The cellular telephone industry provides an excellent opportunity to test these models in that the services provided by the cellular carriers are very similar and an FCC ruling has fixed the number of carriers in each market to two, ruling out the threat of entry. In the first essay of this dissertation, I use a unique cross section and time series data on prices in the cellular industry to test whether firm behavior is explained by supergame models. I exploit the panel nature of the data to control for firm and region specific costs by using a fixed effects model. In this essay, I find some evidence in support of collusion in the cellular telephone industry.;Since the inception of cellular telephone industry, many carriers have merged or have been taken over by bigger operators. This has increased the number of times rivals in one market compete in other markets. This rapid increase in external contact allows us to test for the impact of multimarket contact on prices. In the second essay, I use the data set constructed above to investigate the impact of increasing multimarket contact on prices in the cellular telephone industry. I find that increases in multimarket contact had a negative and significant impact on prices. These results are in sharp contrast to estimates for other industries but I demonstrate that they are consistent with theoretical work by Bernheim and Whinston (1990) on multimarket contact.;In the first two essays, I find that the wireline carriers (carriers which also provided the traditional telephone service in a market) were able to charge a higher price for the cellular service in comparison to the non-wireline carriers. This could be due to the fact that wireline carriers were typically the first to enter the market or because they had more experience in the telecommunication industry. In the third essay, I investigate the sources of the price advantage enjoyed by the wireline carriers.