a Tale of Two-Sided Markets (*)

Abstract: Mobile telephony is described as a "two-sided " market where customers are seen as senders and receivers of communications that are mutually beneficial both to callers and receivers. This has implications in terms of market definition and market power. The economics of mobile call termination is discussed in this context. Key words: mobile telephony, market definition and call termination Market definition in mobile telephony The standard test adopted by most anti-trust and regulatory authorities to identify markets is the so-called SSNIP test (sometimes also referred to as 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 lies 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 result, fall. (*) Parts of this paper are based on work carried out by the author for the European Commission. The comments from an anonymous referee are gratefully acknowledged. The opinions expressed in this paper are the sole responsibility of the author