Consumers and Wireless Carterfone: An Economic Perspective

Phoenix Center Policy Bulletin No. 21

11 Pages Posted: 18 Mar 2009

See all articles by George S. Ford

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Thomas Koutsky

USAID Global Development Lab

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Date Written: September 2008

Abstract

In this paper, we consider the argument that Carterfone-type rules are required in response to mobile operators' use of term contracts, early termination fees, and allegedly restrictive handset certification and support policies. First, we show that such practices by mobile operators are entirely consistent with competitive rivalry, so their use is not an indicator of market power as is frequently claimed. Second, we show that these practices drive down prices for equipment by increasing the degree of complementarity between the mobile device and mobile services. Consequently, applying wireless Carterfone regulations would result in higher equipment prices for consumers, with little if any compensating reduction in service prices. As such, wireless Carterfone regulations cause a wealth transfer from consumers to producers. From a pricing perspective, our welfare calculations imply that wireless Carterfone is bad for consumers and society and, therefore, such losses must be compared to any demonstrated gains from the proposed regulation.

Keywords: Wireless, wireless Carterfone, early termination fees, complementarity

JEL Classification: K23, L13, L14, L51, L96, L98, O33, O38

Suggested Citation

Ford, George S. and Koutsky, Thomas M. and Spiwak, Lawrence J., Consumers and Wireless Carterfone: An Economic Perspective (September 2008). Phoenix Center Policy Bulletin No. 21, Available at SSRN: https://ssrn.com/abstract=1360915 or http://dx.doi.org/10.2139/ssrn.1360915

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
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Thomas M. Koutsky

USAID Global Development Lab ( email )

1300 Pennsylvania Avenue NW
Washington, DC 20577
United States

Lawrence J. Spiwak (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States
202-274-0235 (Phone)
202-318-4909 (Fax)

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