Regulating prices in two-sided markets: The waterbed experience in mobile telephony

  • Authors:

  • Christos Genakos;Tommaso Valletti

  • Affiliations:

  • Athens University of Economics and Business, Athens, Greece and Centre for Economic Performance, LSE, London, UK;Imperial College London, UK and University of Rome "Tor Vergata", Italy and CEPR, UK

  • Venue:
  • Telecommunications Policy
  • Year:
  • 2012

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Abstract

The distinguishing feature of two-sided markets is that the pricing structure, that is, the relative prices charged to each side, matters. Regulators need to understand and account for the interdependence of prices in both sides. Some interventions that lower the prices on one side can result in higher prices on the other side of such markets. This article reviews the recent literature analyzing this waterbed phenomenon in mobile telephony and draws some more general lessons for policy interventions in two-sided markets.