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Do International Roaming Alliances Harm Consumers?

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  • Benno Bühler

    (Toulouse School of Economics (IDEI))

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    Abstract

    We develop a model of international roaming in which mobile network operators (MNOs) compete both on the wholesale market to sell roaming services to foreign operators and on the retail market for subscribers. The operators own a network infrastructure only in their home country. To allow their subscribers to place or receive calls abroad, they have to buy roaming services provided by foreign MNOs. We show that in absence of international alliances and capacity restrictions, competition between foreign operators would drive wholesale unit prices down to marginal costs. However, operators prefer to form international alliances in which members mutually provide roaming services at inefficiently high wholesale prices. Alliances serve as a commitment device to soften competition on the retail market and harm consumers through excessively high per call prices. Although operators compete in two-part tariffs for subscribers, wholesale roaming prices do not exhibit profit-neutrality as do access prices in related models of net- work interconnection. We also show that international alliances are endogenously formed if not prevented by regulation.

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    Bibliographic Info

    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.93.

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    Date of creation: Nov 2009
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    Handle: RePEc:fem:femwpa:2009.93

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    Keywords: International Roaming; Vertical Relations; Regulation;

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    1. Rochet, Jean-Charles & Stole, Lars A, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 277-311, January.
    2. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
    3. Wouter Dessein, 2000. "Network Competition in Nonlinear Pricing," CIG Working Papers FS IV 00-22, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    4. Anderson, Simon P & de Palma, Andre & Nesterov, Yurii, 1995. "Oligopolistic Competition and the Optimal Provision of Products," Econometrica, Econometric Society, vol. 63(6), pages 1281-1301, November.
    5. Salsas, Roger & Koboldt, Christian, 2004. "Roaming free?: Roaming network selection and inter-operator tariffs," Information Economics and Policy, Elsevier, vol. 16(4), pages 497-517, December.
    6. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
    7. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
    8. Palfrey, Thomas R & Srivastava, Sanjay, 1991. "Nash Implementation Using Undominated Strategies," Econometrica, Econometric Society, vol. 59(2), pages 479-501, March.
    9. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages F270-F307, 06.
    10. Sutherland, Ewan, 2001. "International roaming charges: over-charging and competition law," Telecommunications Policy, Elsevier, vol. 25(1-2), pages 5-20, February.
    11. Fabio Manenti & Paolo Lupi, 2006. "Roaming the Woods of Regulation: Public Intervention vs Firms Cooperation in the Wholesale International Roaming Market," "Marco Fanno" Working Papers 0019, Dipartimento di Scienze Economiche "Marco Fanno".
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