Thursday, July 24, 2014
Steffen Hoernig, Nova School of Business and Economics, Universidade Nova de Lisboa discusses The Strength of the Waterbed Effect Depends on Tariff Type .
ABSTRACT: We show that the waterbed effect, i.e. the pass-through of a change in one price of a firm to its other prices, is much stronger if the latter include subscription rather than only usage fees. In particular, in mobile network competition with a fixed number of customers, the waterbed effect is full under two-part tariffs, while it is only partial under linear tariffs.