Nov. 20, 2014

Assessing the impact of on-net and cross-net bill-neutral price changes: example of the French mobile market

By Nicolas Curien and Natalia Shutova

This article proposes a theoretical model of a mobile telephony market with the purpose to study the impact of on-net /off-net (intra-operator/ inter operator) price differentiation. The proposed model specification allows us not only to find social optimum and equilibrium but also to compare the impact of two types of price cuts on operators and consumers: all-net price cuts, equivalent to raising volume ceilings in packages, and on-net price cuts, equivalent to introducing unlimited on-net calls. It appears that all-net price cuts are more beneficial to consumers. The model is then numerically calibrated based on the data of the French mobile market in 2003; it is used to get quantitative results on the impact of price changes. We find that on the French market, where in 2004 two biggest operators opted for on-net price cuts and the third one - for all-net cuts, all-net price cuts by all operators would have been preferable: the increase in the welfare would have been 70% higher.

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