The impact of regulating mobile termination rates and MNO-MVNO relationships on retail prices

A mobile virtual network operator (MVNO) provides mobile telecommunication services by eluding the constraints of the radio communication infrastructure and establishing an agreement with a hosting network operator (HNO) for the use of its spectrum. Thus, MVNOs offer a wide range of mobile services and directly compete with every mobile network operator (MNO). This paper studies the economic justifications for potential regulatory intervention that defines the level of mobile termination rates (MTRs) and negotiations and agreements among MVNOs and HNOs. The results show that symmetric MTR reduction leads to competition growth among operators, forcing every operator to reduce retail prices and, consequently, to enhancing consumer welfare. The paper also finds that a collaborative strategy adopted by an HNO and an MVNO is advantageous for both and induces a reduction in retail prices, thus weakening other MNOs.     

Vertical relations,pass-through,and market definition: Evidence from grocery retailing

We examine how different pass-through rates from input prices to retail prices and different vertical contracts affect upstream market definition. Simple theoretical considerations suggest that vertical restraints induce higher pass-through rates and thus lead to a larger upstream market definition when compared to linear wholesale pricing, given that contracts with linear pricing are associated with lower pass-through rates under imperfect competition. Data from grocery retailing is used to quantify the empirical implications of our theoretical assertion. We find that resale price maintenance leads to larger upstream market definitions than linear pricing. We therefore advise competition authorities to carefully model vertical market structures, whenever they expect incomplete pass-through to be important.     

The effect of competition on pricing and product positioning: Evidence from wholesale club entry

This paper empirically examines incumbents’ reactions to market entry along price and non-price dimensions in the example of wholesale warehouse entry into grocery retail markets. Leveraging a detailed retail panel spanning 2001–2011 and a novel dataset documenting opening and closing dates and locations of all Costco warehouse clubs, we classify incumbent retailers’ strategic responses (e.g., pricing, assortment) by the storability of product categories, controlling for persistent systematic differences across retailer–product combinations. We find that retailers are substantially affected by increased competition from wholesale club warehouse openings and in response increase the variability of their prices, consistent with adoption of the Hi–Lo pricing strategy. In addition, incumbent retailers’ strategic responses differ significantly across storability levels: They are more likely to increase prices and reduce assortments for highly storable products and decrease prices and increase assortments for less storable products. We extend our analysis by exploiting the spatial variations in our data and analyzing divergent market effects across geographical areas. We find significant geospatial differences in these strategic responses.     

The need for a new approach to regulating fixed networks

The increasing danger of excess capacity in the regulated fixed networks calls into question the established long-standing pricing standards for wholesale services based on forward-looking long-run incremental costs (FL-LRAIC). Within the EU “Regulatory Framework for Electronic Communications and Services”, the FL-LRAIC standard has worked quite well in expanding markets, although even there price-squeeze problems have appeared. In contracting markets the price-squeeze issue, however, becomes paramount and lower prices both at the wholesale and retail levels would be efficient. Because both expansion and contraction could be relevant in the future, this paper suggests an optional approach based on the wholesale price formula p=min{FL-LRAIC, Retail-Minus} with an optional replacement of per-minute charges by capacity-based access charges (CBC). This will generally protect alternative competitors against price-squeeze while at the same time allowing the fixed-network incumbent full downward price flexibility. It also protects alternative competitors and end users against excessively high prices.     

Competition in wholesale markets: Do MNOs compete to host MVNOs?

This paper extends previous research examining wholesale market shares of mobile network operators (MNOs). This study demonstrates that wholesale market concentration has decreased over time because of the increase of competition of MNOs for hosting mobile virtual network operators (MVNOs). However, differences in wholesale market shares between MNOs have not disappeared. We propose that those operators that are late entrants in a market and belong to an international group with a proactive attitude towards hosting virtual operators positively influences wholesale market shares of MNOs. The empirical analysis is based on a panel data from 2000 to 2010 corresponding to MNOs and virtual operators in five European countries with high development of the virtual mobile industry. By closely examining KPN we show how being an international mobile group specialising in the wholesale market across Europe has enabled it to exploit complementarities that exist between traditional and virtual businesses.     

Endogenous price commitment,sticky and leadership pricing: Evidence from the Italian petrol market

This article studies dynamic pricing strategies in the Italian gasoline market before and after the market leader unilaterally announced its commitment to adopt a sticky-pricing policy. Using daily Italian firm level prices and weekly average EU prices, we show that the effect of the new policy was twofold. First, it facilitated price alignment and coordination on price changes. After the policy change, the observed pricing pattern shifted from cost-based to sticky-leadership pricing. Second, using a dif-in-dif estimation and a synthetic control group, we show that the causal effect of the new policy was to significantly increase prices through sticky-leadership pricing. Our paper highlights the importance of price-commitment by a large firm in order to sustain (tacit) collusion.     

Regulation of international roaming in the European Union—Lessons learned

This paper analyzes the evolution of prices and competition in intra-EU international roaming markets. It addresses three main research questions: (i) to what extent have market forces by themselves brought competition to retail roaming markets? (ii) Has the evolution of market dynamics in wholesale roaming improved competition? (iii) Is wholesale regulation sufficient to lead to a reduction in retail roaming prices? Data show that there has been little price-based competition both at wholesale and retail levels, despite prices being well above costs and the significant margins allowed by regulation. Available data from the period preceding the entry into force of the first EU roaming regulation also point to the same conclusion. Lack of competitive pressure in retail roaming markets and inelastic demand give little incentives for retail roaming service providers to lower prices. Wholesale international roaming markets have complex competition dynamics. They are characterized by the reciprocity of wholesale roaming agreements and traffic internalization inside transnational groups. These circumstances limit price competition at the wholesale level. The traditional regulatory approach applied to electronic communication markets has been primarily focused on wholesale regulation. However, empirical evidence shows that even if wholesale charges are reduced, retail roaming markets continue to operate at very high retail margins (for example, more than 200% retail mark-up over wholesale charges for data roaming services and incoming calls). This proves that in international roaming markets wholesale charge reductions are not necessarily passed on to retail prices. It can thus be inferred that wholesale price regulation alone is in most cases not sufficient to ensure that benefits are passed through to end users.     

Regulation and investment behaviour in the telecommunications sector: policies and patterns in US and Europe

This paper reports the results of the quantitative analysis of international experience of the relationship between infrastructure investment in the deployment of capacity that can carry large volumes of voice and data traffic and regulatory policy changes in the telecommunications sectors. It looks at the relationship between infrastructure investment for these infrastructure assets and the access pricing régimes for local exchange carriers in the United States and Europe. It then looks at the relationship between various aspects of regulatory and institutional policy changes in Europe and how they affect access prices.The paper finds that a lower access price promotes greater deployment of digital technology among US incumbent local exchange carriers (ILECs). Based on this finding, it suggests that it is in the ILECs interest to have access to their networks encouraged.The European data for interconnection are recent and far reaching conclusions are not feasible, but the findings, however, suggest that competition has worked by facilitating new entry through decreasing interconnection prices, although path dependencies, of existing and traditional concepts, in the mindsets of operators as well as regulators, may account for these findings.     

Diversification strategies in network-based services: The case of mobile virtual network operators

This paper aims at discussing the entry process and competitive strategies of MVNOs in Italy and France. It illustrates the features of competition in a sector – the mobile telecom service industry – which is characterized by market saturation and demand heterogeneity. In doing so, it looks at the characteristics of the two countries in terms of competition and entry of new operators, at the motivations behind the entry of MVNOs, and at the performance of different companies. Results show that the most successful MVNOs are those characterized by the ability to find a perfect match between their core competencies (large network management, strong brand reputation) and the needs of specific segments of demand that had not been previously fulfilled. In this context, companies with ICT network management skills, whether coming from the telecom sector or from other network-based service industries such as postal operators, have been particularly successful in the market. From a policy perspective, despite the failure of some MVNOs, customers have benefited from the increased competition between MNOs and MVNOs in terms of range of service offerings and prices.     

Do International Roaming Alliances Harm Consumers?

This paper develops a model of international roaming in which mobile network operators (MNO's) compete both on the wholesale market to sell roaming services to foreign operators and on the retail market for subscribers. To allow their subscribers to place or receive calls abroad, they have to buy roaming services provided by foreign MNO's. In the absence of international alliances, competition between foreign operators would drive wholesale unit prices down to marginal costs. However, international alliances are endogenously formed since they serve as a commitment device to soften competition on the retail market, leading to excessively high roaming per‐call prices.     

International roaming in the EU: Current overview,challenges, opportunities and solutions

As technology evolves and globalization continues, the need for reasonably priced roaming services has never been higher. In 2007, the European Commission (EC) introduced a first set of regulatory decisions to cap the maximal roaming fee end users have to pay for voice services. In the years after, additional price caps have been introduced for SMS and data, initially only for end users, in a later stage also for the wholesale tariff. The final step, Roaming Like at Home (RLAH), will start to take effect in June 2017; from then on end users will pay the same price (for voice, SMS and data) when roaming like in their domestic country.The effect of RLAH on the business case of each mobile operator is hard to predict, as the different national markets are extremely heterogeneous and operators face large discrepancies in terms of roaming usage and network costs due to different travelling patterns and various other reasons that cannot be harmonized (geography, economics, working force, usage history, etc.). Furthermore, competition in the telecom market will no longer be a purely national matter, as the decision to abolish roaming tariffs will fully open up cross-border competition.This paper aims at providing insights in the effect of RLAH for both the end user as well as the mobile operators. Following a literature survey approach, including an overview of the roaming regulation process from 2007 up to now, the paper discusses possible effects the RLAH initiative might trigger, going from lower wholesale prices for mobile operators to higher retail prices for end users. Additionally, as the European Commission strives for a digital single market, this paper presents a number of technical solutions (carrier portability, software-based SIMs, cross-border IMSI, Roaming like a Local, Wi-Fi offloading) that may pose a - partial or full - alternative for roaming and explains how these may impact cross-border competition both positively and negatively. The solutions are assessed against two axes: (1) generating the best possible outcome for the end customers (in all countries) and (2) ensuring the best level playing field for (virtual) mobile operators in Europe, which will of course involve trade-offs on different levels.     

Australian Residential Telecommunications Consumption and Substitution Patterns

Better telecommunications pricing decisions are able to be made when more complete information concerning relationships among services is available. This study analyses residential fixed-line and mobile telephony, and Internet access and usage demands in an encompassing framework. The discrete-continuous framework allows for service interaction within and between service portfolios. Model estimation is based on the examination of data collected from a country-wide survey of Australian households. In particular, observed service portfolios (household consumption patterns at prevailing access prices and estimated average service usage prices), income and demographic characteristic data are collected. These data also allow the modelling to potentially identify market segments based on income and other household characteristics.JEL Classifications: D12, L11, L69     

Shared ownership and pricing in a network switch

We observe that many wholesale switches in automated teller machine (ATM) networks are jointly owned by their members and that this tends to occur more frequently when the wholesale industry is highly concentrated. We also observe that network switches are ‘natural monopolies’, their costs being largely fixed and their demand exhibiting substantial network externalities. Motivated by these observations, we model the competition for members between wholesale switches and the role joint ownership can play in attracting members. The model analyzes both the adoption decision (which network a bank chooses to join) and the subsequent pricing of switch and ATM services. We compare competition between two solely owned switches with competition between one solely owned and one jointly owned switch. Our analysis shows that a more concentrated structure results under the latter and that retail prices are higher. This calls into question the leniency of antitrust policy toward jointly owned structures.     

New printing technology and pricing

This case study analyzes five Swedish printing houses' pricing with respect to their investments in new printing technology. The new printing technology made it possible for the printing houses to market new products and services to meet the demand for shorter delivery times and full service solutions. Although this demand was apparent, the printing houses' opportunities to capitalize on their investments depended on the characteristics of the market segment that they served. Findings indicate that the new printing technology made it possible to change prices when the new services reduced delivery time and costs, and when there were substantial differences between the new services and available substitutes. Thus, customers accepted new pricing when the utilization of the new technology resulted in financial gains and time reductions.     

Local Energy Markets*

In current power markets, the bulk of electricity is sold wholesale and transported to consumers via long-distance transmission lines. Recently, decentralized local energy markets have evolved, often as isolated networks based on solar generation. We analyze strategic pricing, investment, and welfare in local energy markets. We show that local energy markets yield competitive equilibrium prices and provide efficient investment incentives. Yet, we find that strategic behavior leads to allocative inefficiency. We propose a clearing mechanism that induces truth-telling behavior and restores first-best welfare.     

Third-Degree Price Discrimination in Oligopoly when Markets are Covered*

We analyze oligopolistic third-degree price discrimination relative to uniform pricing when markets are covered. Pricing equilibria are critically determined by supply-side features such as the number of firms and their marginal cost differences. It follows that each firm's Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm's relative margins under discriminatory pricing. Uniform pricing then lowers average prices and raises consumer surplus. We can calculate the gain in consumer surplus and loss in firms' profits from uniform pricing based only on the market data of the discriminatory equilibrium (i.e., prices and quantities).     

The Effects of Charm Listing Prices on House Transaction Prices

As is the case for many different goods and services, it is common practice in many real estate markets for sellers to offer properties for sale at listing prices just below some round number price ( e.g. , $99,900 instead of $100,000). The academic marketing literature refers to this practice as "charm" pricing and suggests that this strategy is an attempt by sellers to take advantage of buyers' cognitive processes in which charm prices affect buyers' perceptions about the seller or the item being offered for sale. Although numerous papers in the housing economics literature have addressed the impact of the magnitude of listing price on observed house transaction prices, no prior published study has considered the impact of the design of listing prices in housing markets. This paper presents an empirical investigation of the effects of charm pricing on house transaction prices using sample data. The results provide some evidence that houses listed at certain charm prices sell for significantly greater transaction prices than those listed at round number prices.     

Barriers to real-time electricity pricing: Evidence from New Zealand

This paper studies the introduction of real-time electricity pricing in the New Zealand residential retail market to understand why its market share remained below 1.25%. We use rich panel data of all retail switches between 2014 and 2018 and an unexpected wholesale price spike to study adoption and attrition. Exploiting the staggered roll-out of real-time pricing in different locations we find that attrition decreases with experience. We also find that prospective adopters are present biased. The combination of these findings explains why adoption stalled and shows that wholesale price spikes pose a serious threat to widespread adoption of real-time pricing.