The Impact of Mobile Number Portability on Price, Competition and Consumer Welfare

Abstract

This paper examines the effect of Mobile Number Portability (MNP) on market price and consumer surplus. MNP reduces switching costs by allowing consumers to keep their phone number when they change service provider. Most European countries introduced MNP in the early 2000s as a result of a mandate from the European Commission. This supra-national legislative shock provides a unique opportunity to study the relationship between switching costs, price and consumer surplus. Theory shows that market prices can either increase or decrease when switching costs reduce and that followers may try to take advantage of decreasing switching costs to attract consumers from the market leaders. Using quarterly data from 47 wireless service providers in 15 EU countries between 1999 and 2006, we find that MNP decreased market price by at least 4.15% and increased consumer welfare by at least 2.15 euros per person per quarter on average during our period of analysis. This amounts to 880 Million euros per quarter across the 15 EU countries analyzed in this paper and 15% of the observed increase in consumer surplus during the period of analysis. This result is obtained using cost-shifters to instrument changes in price, which allows for determining the demand curve in the markets we analyze. Our study shows how the European experience with regards to the introduction of MNP can be used as an example of best practice by other countries that plan to introduce it in the near future.

Keywords: Switching Costs, Mobile Number Portability, Regulation, Competition, Welfare