The Effect of a Satellite Internet Provider on a Landline Telecommunication Duopoly

The world is more connected than ever before with the average household owning 10 connected devices (Verizon, 2018). To connect the unconnected Ericsson (2016) suggests Internet satellites will play an important role. The purpose of this thesis is to understand how Internet satellites effect the telecommunication market using Hotelling (1979) spatial location model to examine equilibrium price and profits in duopoly and triopoly, investigate what happens when the quality of the Internet satellites increases, and identify how location choice impacts the model’s result. Extending previous research, the model provides similar result for both linear and quadratic transportation costs. Moreover, the market power effect dominates so both Hotelling’s (1929) Principle of Minimum Differentials and d’Asperemont et al.’s (1979) Principle of Maximum Differential breaks down and the Internet providers preferred location is between the extremes and the centre of the “linear city.”