Mobile Call Termination-free research paper

Motivated by recent UK experience, we study the problem of mobile call termination. This is an intriguing policy story, in which regulation has been imposed on what appears to be a competitive industry. We introduce a framework which integrates two existing literatures: one analyzing calls from the fixed network to mobile networks (where the predicted market failure involves the termination charge being set at the monopoly level), and one analyzing calls from one mobile network to another (where the predicted unregulated termination charge lies below the efficient level). Our unified framework allows us to consider the impact of wholesale arbitrage and demand-side substitution. In the absence of very significant market expansion possibilities, we find the unregulated termination charge lies between the efficient and the monopoly benchmarks. There remains a rationale for regulation, albeit reduced relative to the earlier literature.

There is an important set of markets in which monopoly prices emerge even when competition is intense. That is to say, while industry profit is not excessive overall, there is an inefficient balance of prices: too high for some services, too low for others. Familiar examples involve consumer “lock-in” of various kinds, including markets with switching costs. In these markets the typical pattern of prices involves “bargains-then-ripoffs”, so that firms attract new consumers with generous deals up-front and consumers pay high (perhaps monopoly) prices once locked in. If competition is vigorous, the monopoly profits from locked-in consumers are transferred to new consumers, and the lifetime profitability of a consumer is approximately zero. In a sense, a consumer’s “future self” is exploited by her “present self”

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