Seesaw in the Air: Interconnection Regulation and the Structure of Mobile Tariffs
AbstractInterconnection rates are a key variable in telecommunications markets. Every call that is placed must be terminated by the network of the receiving party, thus the termination end has the characteristic of an economic bottleneck and is subject to regulation in many countries. This paper examines the impact of regulatory intervention to cut termination rates of calls to mobile phones. We argue that regulatory cuts should have a differential impact according to the type of tariff the mobile customer subscribes to. While all mobile customers may pay higher prices because of a "waterbed" effect, termination rates also affect competition among mobile operators. We show that the waterbed effect is diluted, but not eliminated, for customers with pre-paid cards, where regulation also acts as impediment to "raise-each-other's-cost" collusive strategies that mobile networks can adopt. The waterbed effect is instead strongest for consumers with monthly (post-paid) subscription contracts.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1045.
Date of creation: Feb 2011
Date of revision:
Contact details of provider:
Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP
Interconnection; network competition; regulation; mobile phones;
Other versions of this item:
- Genakos, Christos & Valletti, Tommaso, 2011. "Seesaw in the air: Interconnection regulation and the structure of mobile tariffs," Information Economics and Policy, Elsevier, vol. 23(2), pages 159-170, June.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-IND-2011-03-12 (Industrial Organization)
- NEP-NET-2011-03-12 (Network Economics)
- NEP-REG-2011-03-12 (Regulation)
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.:
- Wright, Julian, 2002. "Access Pricing under Competition: An Application to Cellular Networks," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 289-315, September.
- Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
- Gans, Joshua S. & King, Stephen P., 2000.
"Mobile network competition, customer ignorance and fixed-to-mobile call prices,"
Information Economics and Policy,
Elsevier, vol. 12(4), pages 301-327, December.
- Gans, J.S. & King, S.P., 2000. "Mobile Network Competition, Customer Ignorance and Fixed-to-Mobile Call Prices," Department of Economics - Working Papers Series 734, The University of Melbourne.
- Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
- Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
- Audrey Laporte & Frank Windmeijer, 2005.
"Estimation of Panel Data Models with Binary Indicators when Treatment Effects are not Constant over Time,"
laporte-04-01, University of Toronto, Department of Economics.
- Laporte, Audrey & Windmeijer, Frank, 2005. "Estimation of panel data models with binary indicators when treatment effects are not constant over time," Economics Letters, Elsevier, vol. 88(3), pages 389-396, September.
- Hoernig, Steffen, 2010. "Competition Between Multiple Asymmetric Networks: Theory and Applications," CEPR Discussion Papers 8060, C.E.P.R. Discussion Papers.
- K. Andersson & � Foros & F. Steen, 2009.
"Text and voice: complements, substitutes or both?,"
Industrial and Corporate Change,
Oxford University Press, vol. 18(6), pages 1231-1247, December.
- Harbord, David & Hoernig, Steffen, 2010.
"Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger),"
21515, University Library of Munich, Germany.
- Harbord, David & Hoernig, Steffen, 2010. "Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger)," CEPR Discussion Papers 7730, C.E.P.R. Discussion Papers.
- David Harbord & Steffen Hoernig, 2012. "Welfare Analysis of Regulating Mobile Termination Rates in the UK with an Application to the Orange/T-Mobile Merger," FEUNL Working Paper Series wp571, Universidade Nova de Lisboa, Faculdade de Economia.
- Christos Genakos & Tommaso Valletti, 2011.
"Testing The “Waterbed” Effect In Mobile Telephony,"
Journal of the European Economic Association,
European Economic Association, vol. 9(6), pages 1114-1142, December.
- Genakos, Christos D. & Valletti, Tommaso, 2009. "Testing the "Waterbed" Effect in Mobile Telephony," CEPR Discussion Papers 7611, C.E.P.R. Discussion Papers.
- Christos Genakos & Tommaso Valletti, 2008. "Testing the “Waterbed” Effect in Mobile Telephony," CEIS Research Paper 110, Tor Vergata University, CEIS, revised 11 Jul 2008.
- Christos Genakos & Tommaso Valletti, 2007. "Testing the "Waterbed" Effect in Mobile Telephony," CEP Discussion Papers dp0827, Centre for Economic Performance, LSE.
- Harbord David & Pagnozzi Marco, 2010. "Network-Based Price Discrimination and `Bill-and-Keep' vs. `Cost-Based' Regulation of Mobile Termination Rates," Review of Network Economics, De Gruyter, vol. 9(1), pages 1-46, February.
- Ginger Zhe Jin & Marc Rysman, 2012. "Platform Pricing at Sports Card Conventions," NBER Working Papers 17959, National Bureau of Economic Research, Inc.
- Dewenter, Ralf & Kruse, Jörn, 2010.
"Calling party pays or receiving party pays? The diffusion of mobile telephony with endogenous regulation,"
DICE Discussion Papers
10, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
- Dewenter, Ralf & Kruse, Jörn, 2011. "Calling party pays or receiving party pays? The diffusion of mobile telephony with endogenous regulation," Information Economics and Policy, Elsevier, vol. 23(1), pages 107-117, March.
- Cunningham, Brendan M. & Alexander, Peter J. & Candeub, Adam, 2010. "Network growth: Theory and evidence from the mobile telephone industry," Information Economics and Policy, Elsevier, vol. 22(1), pages 91-102, March.
- Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
- Tommaso Valletti & George Houpis, 2005. "Mobile Termination: What is the “Right” Charge?," Journal of Regulatory Economics, Springer, vol. 28(3), pages 235-258, November.
- Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages F270-F307, 06.
- Vogelsang, Ingo, 2010. "The relationship between mobile and fixed-line communications: A survey," Information Economics and Policy, Elsevier, vol. 22(1), pages 4-17, March.
- Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
- Andersson, Kjetil & Foros, Øystein & Hansen, Bjørn, 2012. "Empirical evidence on the relationship between mobile termination rates and firms’ profit," Discussion Papers 2012/10, Department of Business and Management Science, Norwegian School of Economics.
- Lee, Jongyong & Lee, Duk Hee, 2012. "Asymmetry of mobile termination rates and the waterbed effect," 23rd European Regional ITS Conference, Vienna 2012 60353, International Telecommunications Society (ITS).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.