An empirical model of the effects of bill shock regulation in mobile telecommunication markets *

We develop an empirical model of consumer usage and price uncertainty under a threepart tariff plan to study the effects of an enacted bill shock agreement in mobile telecommunication markets, which requires mobile network operators to inform consumers when they use up the monthly allowance of their mobile phone plan. Using a rich billing dataset, we estimate an industry model of calling, subscription, and pricing. Our counterfactual simulations, which incorporate operators' price responses to compute the new equilibrium, show that the regulation would lead to lower fixed fees, lower allowances, and lower overage prices chosen by the operators. The regulation and the pricing changes in response to it would benefit both the consumers and the operators, and overall the total surplus would increase by $307 million per month. An increase in mobile penetration explains the joint increase in firm profits and consumer surplus.

Automated summary

This study develops an empirical model to examine the effects of an enacted bill shock agreement in mobile telecommunication markets. The simulations show that the regulation would benefit both consumers and operators, resulting in lower fees, allowances, and overage prices.