Predation and network based price discrimination in Chile

Abstract This paper uses a model of strategic interaction among firms –that set discriminatory and nonlinear prices– in addition to public information on prices of the plans marketed by the three major mobile phone companies, to assess the extent to which on-net/off-net price differentials in the plans they offered could represent predatory practices in the mobile telephony market in Chile. The results show that the largest companies offered a few plans with an off-net/on-net price differential larger than what a competitive theoretical model predicts. This larger differential is consistent with the notion of predation defined by Hoernig (2007) as reducing a competitor's profits. Despite the fact that these plans were a small fraction of all the plans mobile phone firms offered, they were recently banned by the antitrust authority because of their potential anticompetitive effects.