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Valletti, Tommaso --- "Mobile Call Termination: A Tale of Two-Sided Markets" [2009] ELECD 569; in Lévêque, François; Shelanski, Howard (eds), "Antitrust and Regulation in the EU and US" (Edward Elgar Publishing, 2009)

Book Title: Antitrust and Regulation in the EU and US

Editor(s): Lévêque, François; Shelanski, Howard

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847207616

Section: Chapter 7

Section Title: Mobile Call Termination: A Tale of Two-Sided Markets

Author(s): Valletti, Tommaso

Number of pages: 17

Extract:

7. Mobile call termination: a tale of
two-sided markets*
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 con-
sequences of a (hypothetical) Small but Significant and Non-transitory
Increase in Price on the profitability of the (hypothetical) firm that initi-
ates 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 prod-
ucts ("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: decid-
ing 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 pat-
terns, needs, mobility, etc., which is reflected in part in the vast ...