Natural Experiments in Mobile Phone Regulation: Estimated Effects of Prohibiting Handset Bundling in Finland and Belgium

35 Pages Posted: 24 May 2014  

Thomas W. Hazlett

Clemson University

Sarah Oh

George Mason University, Department of Economics, Students

Brent Skorup

George Mason University - Mercatus Center

Date Written: March 17, 2014

Abstract

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.

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

Suggested Citation

Hazlett, Thomas W. and Oh, Sarah and Skorup, Brent, Natural Experiments in Mobile Phone Regulation: Estimated Effects of Prohibiting Handset Bundling in Finland and Belgium (March 17, 2014). George Mason Law & Economics Research Paper No. 14-17. Available at SSRN: https://ssrn.com/abstract=2440854 or http://dx.doi.org/10.2139/ssrn.2440854

Thomas W. Hazlett (Contact Author)

Clemson University ( email )

Clemson, SC 29634
United States
8646563430 (Phone)
8646564192 (Fax)

HOME PAGE: http://hazlett.people.clemson.edu/

Sarah Oh

George Mason University, Department of Economics, Students ( email )

Fairfax, VA
United States

Brent Skorup

George Mason University - Mercatus Center ( email )

3434 Washington Boulevard
Fourth Floor
Arlington, VA 22201
United States

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