This paper examines the impact of regulatory intervention to cut termination rates of callsfrom fixed lines to mobile phones. Under quite general conditions of competition, theorysuggests that lower termination charges will result in higher prices for mobile subscribers, aphenomenon known as the "waterbed" effect. The waterbed effect has long beenhypothesized as a feature of many two-sided markets and especially the mobile networkindustry. Using a uniquely constructed panel of mobile operators' prices and profit marginsacross more than twenty countries over six years, we document empirically the existence andmagnitude of this effect. Our results suggest that the waterbed effect is strong, but not full.We also provide evidence that both competition and market saturation, but most importantlytheir interaction, affect the overall impact of the waterbed effect on prices.
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number
dp0827.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Jean-Charles Rochet Author-Email: rochet@cict.fr Author-Workplace-Name: IDEI, University of Toulouse & Jean Tirole Author-Email: tirole@cict.fr Author-Workplace-Name: IDEI, University of Toulouse, 2006.
"Two-Sided Markets: A Progress Report,"
RAND Journal of Economics,
The RAND Corporation, vol. 37(3), pages 645-667, Autumn.
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