Testing the 'Waterbed' Effect in Mobile Telephony
68 Pages Posted: 11 Jan 2010
There are 2 versions of this paper
Testing the 'Waterbed' Effect in Mobile Telephony
Date Written: December 2009
Abstract
This paper examines the impact of regulatory intervention to cut termination rates of calls from fixed lines to mobile phones. Under quite general conditions of competition, theory suggests that lower termination charges will result in higher prices for mobile subscribers, a phenomenon known as the "waterbed" effect. The waterbed effect has long been hypothesized as a feature of many two-sided markets and especially the mobile telephony industry. Using a uniquely constructed panel of mobile operators' prices and profit margins across more than twenty countries over six years, we document empirically the existence and magnitude of this effect. Our results suggest that although regulation reduced termination rates by about 10%, this also led to a 5% increase in mobile retail prices. We also provide evidence that both competition and market saturation, and most importantly their interaction, affect the overall impact of the waterbed effect on prices.
Keywords: regulation, telephony, termination rates
JEL Classification: L4, L9
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
By Mark Armstrong and Julian Wright
-
By Mark Armstrong and Julian Wright
-
Network Competition and Entry Deterrence
By Tommaso M. Valletti and Joan Calzada
-
Network Competition and Entry Deterrence
By Joan Calzada and Tommaso M. Valletti
-
Network Competition and Entry Deterrence
By Joan Calzada and Tommaso M. Valletti
-
On-Net and Off-Net Pricing on Asymmetric Telecommunications Networks
-
Network Competition and Access Charge Rules
By Toker Doganoglu and Yair Tauman
-
Mobile Termination and Mobile Penetration
By Sjaak Hurkens and Doh-shin Jeon
-
A Retail Benchmarking Approach to Efficient Two-Way Access Pricing
By Doh-shin Jeon and Sjaak Hurkens
Testing the 'Waterbed' Effect in Mobile Telephony
This is a CEPR Discussion Paper. CEPR charges a fee of $8.00 for this paper.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.
