Natural Experiments in Mobile Phone Regulation: Estimated Effects of Prohibiting Handset Bundling in Finland and Belgium
Thomas W. Hazlett
George Mason University Dept. of Economics and School of Law
George Mason University, Department of Economics, Students
George Mason University - Mercatus Center
March 17, 2014
George Mason Law & Economics Research Paper No. 14-17
Vertical restrictions have theoretically ambiguous efficiency effects. Marketplace evidence is therefore required to reveal the presence of anti-competitive foreclosure. The bundling of mobile phones with cellular network service offers one such market test. Two European nations — Finland and Belgium — prohibited tying arrangements for mobile service and mobile devices (handsets) in wireless broadband (3G) markets. These rules were abandoned in 2006 and 2010, respectively, creating natural experiments.
This article compares 3G subscribership in European countries from 2003 through 2012. Finland and Belgium, while banning bundles, exhibited 3G penetration levels only about a third of the EU 15 average. Following their respective regime switches, relative 3G penetration levels improved markedly in these countries — Finland, in fact, became an EU leader. Regressions adjusting for market specific factors quantify the effects. The data are consistent with the view that carrier handset subsidies, which are strongly supported by bundling services with hardware, help internalize network effects that, if unsupported by the network carriers, may go unrealized. Vertical integration here appears to assist in productive ecosystem creation, not anti-competitive foreclosure.
Number of Pages in PDF File: 35
Keywords: mobile phone regulation, 3G networks, bundling, foreclosure, bundled contract, competition, consumer protection, deregulation, demand, growth, social welfare, subsidy, technology platforms, transaction cost, wireless services
JEL Classification: K23, L14, L50, L96
Date posted: May 24, 2014
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