Competition Reform and Household Welfare: A Microsimulation Analysis of the Telecommunication Sector in Ethiopia

23 Pages Posted: 20 Jan 2021

Abstract

This paper presents a novel method for estimating the likely welfare effects of competition reforms for both current and new consumers. Using household budget survey data for 2015/16 for Ethiopia and assuming a reform scenario that dilutes the market share of the state-owned monopoly to 45 percent, the model predicts a 25.3 percent reduction in the price of mobile services and an increase of 4.6 million new users. This reform would generate a welfare gain of 1.37 percent among all consumers. Poverty rates are expected to decline by 0.31 percentage points, driven by a reduction of 0.22 percentage points for current consumers and 0.09 percentage points among new users. Inequality would increase by 0.23 Gini points since better off consumers are more likely to reap the benefits of greater competition. This method represents a powerful tool for supporting the analysis of competition reforms in developing countries, particularly in sectors known for excluding significant segments of the population due to high consumer prices.

JEL Classification: C15, D40, D60, I32, L86, N77

Suggested Citation

Rodriguez-Castelan, Carlos and Araar, Abdelkrim and Malásquez, Eduardo and Ochoa, Rogelio, Competition Reform and Household Welfare: A Microsimulation Analysis of the Telecommunication Sector in Ethiopia. IZA Discussion Paper No. 14044, Available at SSRN: https://ssrn.com/abstract=3767281 or http://dx.doi.org/10.2139/ssrn.3767281

Carlos Rodriguez-Castelan (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Abdelkrim Araar

Université Laval ( email )

2214 Pavillon J-A. DeSeve
Quebec, Quebec G1K 7P4
Canada

Eduardo Malásquez

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Rogelio Ochoa

World Bank

1818 H Street, NW
Washington, DC 20433
United States

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