Influence of Technological Change on Pricing in Telecommunications



Most of the telecommunications service providers in India are experiencing higher marginal cost of production than marginal revenue. This paper is inspired by the unusual mismatch of these two parameters, which determine market equilibrium price. In the unregulated oligopolistic market where entry is costly, we experience oversupply of the product or services at price much lower than the market equilibrium price. New firm in the oligopoly market develops market power by lowering the price of the product to a level below the market price. The incumbent service providers initiate actions to improve their bottom line with business process reengineering, remodeling business processes, and introducing new technologies. The induction of new technology although it reduces cost of production, is not regarded as sole approach to lower the equilibrium price of the market and maximization of societal welfare. This paper examines technological change, which a firm takes up to improve quality of service as well as effect of it on pricing of the product.

Keywords: oligopoly; marginal cost; technology; societal welfare; regulation

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ISSN : 2251-1563