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Welfare Analysis of Regulating Mobile Termination Rates in the U . K .
Author(s) -
Harbord David,
Hoernig Steffen
Publication year - 2015
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12084
Subject(s) - economic surplus , welfare , externality , network effect , mobile telephony , social welfare , advertising , market share , economics , business , microeconomics , telecommunications , computer science , marketing , mobile radio , market economy , political science , law
We develop a calibrated simulation model of the U . K . mobile telephony market and use it to analyze the effects of reducing mobile termination rates ( MTR 's) as recommended by the E uropean C ommission. We find that reducing MTR 's is likely to increase both consumer surplus and networks' profits. Depending on the strength of call externalities (i.e., benefits to the recipient of a call), social welfare may increase by as much as £1 billion to £4.6 billion per year. We also use the model to estimate the welfare effects of the 2010 merger between O range and T ‐ M obile and find that the merger led to a substantial reduction in consumer surplus.