We study how political factors can shape competition in the mobile telecommunication sector. We show that the way a government designs the rules of the game has an impact on concentration, competition, and prices. Pro-competition rules reduce prices, but do not hurt the quality of services or investments.
More democratic governments tend to design rule that are more pro-competition, while more politically connected operators are able to distort the rules in their favor, restricting competition. Government intervention has large redistributive effects: U.S. consumers would gain $65bn ($44bn) a year if U.S. mobile service prices were in line with Germany (Denmark).
Firms have inefficiently low incentives to innovate when other firms benefit from their inventions and the innovating firm therefore does not capture...