Economic rationality analysis for scenario selection of dominant firm over competitive condition during the formation period of the FTTH market

Abstract

The FTTH market for single-unit homes in eastern Japan area has allowed NTT East to maintain high market share, although there have been insufficient entries after its launch, and it has been less competitive to this day.

In this paper, we construct a hypothetical market model consisting of a dominant firm and a potential competitor. By analyzing the model in which the firms select the scenarios based in counterfactual assumption to maximize their own business value, we try to derive the mechanism of the actual market.

According to the analysis, the scenario chosen by NTT East squeezed the margins of a potential competitor and created a barrier to entry. On the other hand, NTT East’s scenario selection itself satisfied economic rationality and the competitive condition would be expected to improve through administrative regulation, therefor it is presumed that the situation did not make it necessary to change the scenario. As a result, we consider that competition became inactive because of insufficient opportunities for entry.