Abstract

This paper analyzes the development of Japan's mobile phone market. Specifically, it focuses on the regulatory reforms of Japan's mobile communication sector and their impact on the growth of the market. The analysis based on a monopolistic competition model shows that the deregulation policies perform an essential role in fostering the rapid expansion of Japan's mobile phone market. Using quarterly data from 1991 to 1999, the paper tests the significance of the telecommunication deregulation on both the price and the demand of mobile phone services. The empirical results suggest that the significant price declination and the rapid growth of mobile phone market in the last decade were largely attributed to the regulatory reforms, which abolished the entry barriers, phased out the mobile phone rental system, and simplified the mobile communication rate setting procedure. In addition, the demand curve of model phone service was estimated. The estimated demand function indicates that the demand for mobile phone service is highly price elastic. The price elasticity was as high as 6.4 and decreased to 2.1 by 1999 as the market became saturated.