Antitrust and Regulation in the EU and US

Antitrust and Regulation in the EU and US

Legal and Economic Perspectives

New Horizons in Competition Law and Economics series

Edited by François Lévêque and Howard Shelanski

The diverse and excellent set of authors assembled in this book sheds light on the continuing and conflicting calls for deregulation and re-regulation of important industries and informs the ongoing, increasingly global, policy debate over the evolving line between regulation and general competition policy. The purpose of this book is to understand the debate and its policy implications, focusing on the traditionally regulated sectors of telecommunications and energy, and comparing approaches in the European Union and the United States.

Chapter 7: Mobile Call Termination: A Tale of Two-Sided Markets

Tommaso Valletti

Subjects: economics and finance, competition policy, law and economics, law - academic, competition and antitrust law, law and economics


* Tommaso Valletti MARKET DEFINITION IN MOBILE TELEPHONY The standard test adopted by most anti-trust and regulatory authorities in identifying markets is the so-called SSNIP test (sometimes also called the “hypothetical monopolist test”). This is designed to explore the consequences of a (hypothetical) Small but Significant and Non-transitory Increase in Price on the profitability of the (hypothetical) firm that initiates it. At the heart of this test is the question of what might make such a price rise unsustainable. Some consumers may switch to substitute products (“demand-side substitutability”) and some firms operating “near” to the (narrowly defined) candidate market may alter their plans and supply similar products (“supply-side substitutability”). If there are close demand- or supply-side substitutes, then the price increase initiated by the hypothetical monopolist will lead to a large reduction in its sales, and its profits will, as a consequence, fall. A number of difficulties arise in identifying market boundaries: deciding how to treat firms that operate in many related markets, dealing with intermediate goods markets, applying the test to markets that are already monopolised (known as the “cellophane fallacy”), and determining what is “small but significant”. All these difficulties occur when applying these general principles to mobile telephony markets. Customers buy mobile phones for many reasons. Customer profiles are very heterogeneous in terms of calling patterns, needs, mobility, etc., which is reflected in part in the vast number of tariffs on offer in these markets.1 The needs of a certain customer are themselves not immutable, and will depend...

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