Price Regulation and Its Effect on Marketing: The Case of the Mobile Telecommunications Sector in Korea

Abstract

This paper studies the relationship between price regulation and marketing intensity in the Korean mobile telecommunications service industry, a sector in which direct retail price controls are imposed by the regulatory authority. Facing such price regulations, mobile service providers in Korea seem to have focused on non-price competition in their marketing activities, such as handset subsidies. The findings show that marketing intensity escalates after a price control is implemented until the next price control is imposed. This is a sign of strong competitive pressure even under the legal ban on handset subsidies in Korea. When strong competitive pressure exists and prices are regulated, restrictions on marketing may not work well.