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The Strength of the Waterbed Effect Depends on Tariff Type

Steffen Hoernig ()

FEUNL Working Paper Series from Universidade Nova de Lisboa, Faculdade de Economia

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. JEL codes: D43, L13, L51

Keywords: Waterbed effect; two-part tariff; linear tariff; mobile termination; two-sided platforms (search for similar items in EconPapers)
Pages: 10 pages
Date: 2014
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