An Empirical Model of the Effect of “Bill Shock” Regulation in Mobile Telecommunication Markets

In this paper, we develop an empirical model of consumer usage and price uncertainty under a threepart tariff plan. Using this model, we study the effects of the recently proposed “Bill Shock” regulation in the mobile phone industry, a proposal that would inform consumers when they use up the monthly allowance of their mobile phone price plan. Using a rich billing dataset, we estimate an industry model of calling, subscription and pricing. Our counterfactual simulations predict that the proposed regulation will have two conflicting effects on mobile phone companies’ pricing decision: It will lead to an increase in fixed fees and a decrease in overage fees. Finally, we find that the price changes have different implications for different segments of consumers: Both consumer surplus and industry revenue will decrease for light users and increase for heavy users. ∗Sauder School of Business, UBC. 2053 Main Mall, Vancouver, BC V6T 1Z4. E-mail: [email protected]