# **5. Results**

This section discusses the main results and limitations of the proposed approach to simulate the effects on poverty and inequality of reducing concentration in the markets of mobile telecommunication and corn products in Mexico. The section is organized in four subsections. The first two show the main results of simulating the effects of reducing concentration in the markets of mobile telecommunication and corn products individually (that is, reforming one market at a time). The third subsection shows the aggregate effects of implementing policies to reduce concentration in these two markets simultaneously. In this latter case, since the welfare function is not necessarily linear, the aggregate impact of reforming both markets simultaneously will not necessarily be equal to the sum of the individual impacts. The last subsection discusses some of the limitations of the proposed simulation approach.

# **5.1. Distributional impacts of market concentration in mobile telecommunication**<sup>**24**</sup>

The simulation assumes that, in 2014, the mobile telecommunication market in Mexico was organized as an oligopoly consisting of four firms. In addition, the results of simulating the movement from a concentrated market to a perfect competitive market in multiple steps are shown. One way to interpret these latter results is that, while the perfectly competitive scenario is a long-run counterfactual, the simulations of the different steps represent the likely scenarios in the short and medium term.<sup>25</sup> First, Table 3 shows the simulated impacts of moving from the initial scenario (4 incumbent firms) to a market with 6 firms (2 new entrants) in the short run. Then, the impact of moving to 8 firms (4 new entrants) is simulated, and then from 8 to 12 firms (8 new entrants). The final step assumes the impact of moving to perfect competition in the long run (although, in the mobile telecommunication market, the number of firms tends to be rather small). For the price elasticity of demand, the simulation relies on the empirical estimations reported in Hausman and Ros (2013) for mobile telecommunication services (η ��0.476).

**Table 3. Estimated price change and related parameters**

|**Oligopoly (Nash)**<br>**market**|**Step 1**|**Step 2**|**Step 3**|**Competitive market**|
|---|---|---|---|---|
|Firms�4|Firms� 6|Firms�8|Firms�12|Firms� ∞|
|η��0. 476|η��0.377|η��0.328|η��0.279|η<sup>∗</sup>� �0.1808|
|p1� 1. 344|p�� 1.306|p�� 1.275|p�� 1.229|p�� 1.0000|

_Source:_ World Bank estimates using ENIGH 2014; Hausman and Ros 2013.

_Note:_ Changes in elasticity occur due to the simulation of a large price drop in the item of interest, resulting in a quantity demanded of larger magnitude and decreasing the absolute value of the elasticity.

Table 3 shows illustrates the WELCOM prediction that market concentration increases prices in the mobile communication market in Mexico by about 34.4 percent with respect to a scenario of perfect

> 24 In this section the term telecommunications and communications will be used to refer to mobile communications services.

> 25 The rule that WELCOM follows is to multiply the original number of firms by 1.5 in the first step and then, for the step _n_ , multiply the initial number of firms by _n_ , when _n_ <u>> 2.</u>

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