Customer ignorance, price cap regulation and rent-seeking in mobile roaming

Mobile phone usage when travelling abroad is expensive. In contrast to domestic voice call prices, entry of new firms does not put a downward wholesale and retail price pressure on mobile usage abroad. The network connection switches frequently between available networks, and the choice of network has largely been independent of wholesale prices. As a consequence, the wholesale prices are strategic substitutes. The recent European price cap regulation does not solve this underlying problem, and there may be a permanent need for regulation analogous to what we have for domestic call termination. This should be a cautionary tale to the authorities whose goal is that the price cap regulation should be temporary. We show that there is also a risk that wholesale price cap regulation stimulates wasteful rent-seeking activity

Competition for Partners: Strategic Games in Wholesale International Roaming

High international roaming prices have puzzled and occupied analysts and regulators for quite a time. While on the retail side the problem seems to be well understood, and the high margins can be justified using Ramsey pricing logic, on the wholesale side the picture is not so clear. Recent contributions find reasons for regulation based on the existence of random traffic and on the bilateral nature of the wholesale deals, which raise the equilibrium prices even when operators can choose a preferred network. This paper intends to investigate whether or not those concerns are justified. This is done by modelling the bilateral roaming negotiations and extending the current models, assuming that home operators (the ones with a retail contract with the customer in its country of residence) can decide not only their preferred network in each visited country, but also the distribution of their outbound traffic among the visited operators. We find that when traffic steering is perfect the wholesale market is competitive, and that the lower prices are passed on to end users through competition for retail customers. The bilateral nature of international roaming wholesale deals is actually an additional source of competition on the retail market for mobile services because the roaming out traffic (the traffic of an operator's retail customers abroad) and the roaming in traffic (the traffic of foreign customers that an operator is able to attract) are directly linked. --

COMPETITION AT LAST? AN ECONOMIC ANALYSIS OF CURRENT MOBILE DATA ROAMING REGULATIONS IN EUROPE

The mobile data roaming market in the European Union is characterized by a lack of competition which is one of the main reasons for wholesale and retail prices being well above cost-based prices. In 2012, the European Commission has enacted new regulatory measures such as allowing for more players competing in the wholesale data roaming market and forcing mobile network operators to unbundle roaming services from domestic offers by 2014. Moreover, the European Commission recently proposed the elimination of roaming charges by 2016. Nevertheless, it remains unclear whether these measures will ultimately result in more competition and, thus, in increased social welfare. Drawing on existing research from IS, telecommunications and regulation domains, we propose the development of an analytical model to evaluate the economic implications of these regulatory measures

Network competition : empirical evidence on mobile termination rates and profitability

We analyze a model of multi firm competition between mobile network operators. The model assumes inelastic usage demand and full penetration, and allows for asymmetric termination rates, differences in marginal costs and vertical differentiation. A key property is that operators’ equilibrium profit is unaffected by an identical change in all termination rates in the market - we call this the profit neutrality hypothesis. The model is well suited for econometric implementation. We use a panel data set comprising north western European mobile operators to estimate equilibrium profit functions and find that we cannot reject the profit neutrality hypothesis. The results suggest that a reduction in mobile termination rate levels in mature markets will not necessarily benefit consumers

Network competition : empirical evidence on mobile termination rates and profitability

We analyze a model of multi firm competition between mobile network operators. The model assumes inelastic usage demand and full penetration, and allows for asymmetric termination rates, differences in marginal costs and vertical differentiation. A key property is that operators’ equilibrium profit is unaffected by an identical change in all termination rates in the market - we call this the profit neutrality hypothesis. The model is well suited for econometric implementation. We use a panel data set comprising north western European mobile operators to estimate equilibrium profit functions and find that we cannot reject the profit neutrality hypothesis. The results suggest that a reduction in mobile termination rate levels in mature markets will not necessarily benefit consumers

Empirical evidence on the relationship between mobile termination rates and firms’ profit

The comprehensive theoretical literature on mobile termination rates (MTRs) is inconclusive on how the level of MTRs affects overall consumer charges and firms’ profit. In a theoretical model, well suited for econometric implementation, we show that where consumers buy a bundle with included usage, as we now observe in the market, the level of MTRs has no impact on retail prices and firms’ profit. We use a panel data set from saturated European markets and find that an identical change in MTRs does not have a significant impact on firms’ profit

Hvordan påvirker termineringsavgifter små mobiloperatører som One Call?

I denne utredningen vurderer jeg hvordan termineringsavgifter påvirker små mobiloperatører som One Call. Først ser jeg på utviklingen i mobilmarkedet generelt, for så å fokusere på One Call. Jeg ser på selskapets pris- og kostnadsstruktur. Deretter presenterer jeg teori om termineringsavgifter med fokus på regulering. Jeg presenterer to modeller der jeg forutsetter at kunder er uvitende om hvilket nettverk de ringer til. Utredningen avrundes med en analysedel der jeg støtter opp om antagelsen om kundeuvitenhet med en undersøkelse og diskuterer situasjonen i Norge i forhold til teorien. Til slutt i analysen ser jeg på hvilke konsekvenser regulering av termineringsavgifter har for One Call, og runder av med en konklusjon

Competition between content distributors in two-sided markets

We analyze strategic interactions between two competing distributors of an independent TV channel. Consistent with most of the relevant markets, we assume that the distributors set end-user prices while the TV channel sets advertising prices. Within this framework we show that the distributors have incentives to internalize the fact that viewers dislike ads on TV, but no incentives to internalize how the TV channel’s profits from the advertising market are affected by end-user prices. This leads to some surprising results. First, we show that even undifferentiated distributors might make positive profits. Second, a TV channel might find it optimal to commit to not raising advertising revenue. Third, regulation of the advertising volume might be welfare improving even if the unregulated advertising level is too low from a social point of view

Media bias, news customization and competition

The media bias literature has focused its attention on single-ideology media firms. We analyze the incentives for media firms to adopt a multi-ideology strategy. A multi-ideology strategy occurs when a media firm adapts news to consumers’ political preferences. In this sense, news customization can reduce media bias, since media firms can cover a larger variety of political opinions. We show that although the incentives to customize are larger under duopoly than under monopoly, a monopolist might also end up offering customized news to consumers. In this sense, we argue that the competition policy for the media sector should take into consideration not only media concentration issues, but also the plurality of political opinions embraced inside a media firm

Complex pricing and consumer-side attention

This paper analyzes a market in which two horizontally differentiated firms compete by setting menus of two-part tariffs, and in which some consumers are not informed about the linear per-unit price component. We consider two regulatory interventions that limit firms’ ability to price discriminate: (i) diminishing the range of contracts via a reduction in the number of two-part tariffs offered (which prohibits inter-group price discrimination), and (ii) a reduction in tariff complexity via the abolishment of linear fees (which prohibits inter- and intra-group price discrimination). We characterize the effects of these interventions on firm profits and (informed and uninformed) consumer welfare, and identify conditions for the optimal policy. Our results provide insights for the evaluation of recent policy interventions (e.g., the regulation of roaming charges in the EU market)