Do International Roaming Alliances Harm Consumers?

47 Pages Posted: 30 Nov 2009

See all articles by Benno Buehler

Benno Buehler

Toulouse School of Economics (IDEI) ; Department of Economics - Ludwig Maximilian University Munich

Multiple version iconThere are 2 versions of this paper

Date Written: October 2, 2009

Abstract

We develop a model of international roaming in which mobile network operators (MNOs) compete both on the wholesale market to sell roaming services to foreign operators and on the retail market for subscribers. The operators own a network infrastructure only in their home country. To allow their subscribers to place or receive calls abroad, they have to buy roaming services provided by foreign MNOs. We show that in absence of international alliances and capacity restrictions, competition between foreign operators would drive wholesale unit prices down to marginal costs. However, operators prefer to form international alliances in which members mutually provide roaming services at inefficiently high wholesale prices. Alliances serve as a commitment device to soften competition on the retail market and harm consumers through excessively high per call prices. Although operators compete in two-part tariffs for subscribers, wholesale roaming prices do not exhibit profit-neutrality as do access prices in related models of network interconnection. We also show that international alliances are endogenously formed if not prevented by regulation.

Keywords: International Roaming, Vertical Relations, Regulation

JEL Classification: D43, L13, L42, L96

Suggested Citation

Buehler, Benno, Do International Roaming Alliances Harm Consumers? (October 2, 2009). FEEM Working Paper No. 93.2009, Available at SSRN: https://ssrn.com/abstract=1515786 or http://dx.doi.org/10.2139/ssrn.1515786

Benno Buehler (Contact Author)

Toulouse School of Economics (IDEI) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Department of Economics - Ludwig Maximilian University Munich ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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