Testing the "waterbed" effect in mobile telephony
By: Christos Genakos and Tommaso Valletti.
Contributors: Valletti, Tommaso M.; London School of Economics and Political Science. Centre for Economic Performance.
Series: CEP discussion paper -- no. 827
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Published: 2007
Place of publication: London
Language: eng
Format: Electronic resource
Description: 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 network 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 the waterbed effect is strong, but not full. We also provide evidence that both competition and market saturation, but most importantly their interaction, affect the overall impact of the waterbed effect on prices.
Notes: Title from publisher's abstract page (viewed on Jan. 3, 2008).

"October 2007."

Includes bibliographical references.

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