BEREC REPORT ON IMPACT OF FIXED-MOBILE ... - berec - Europa

BoR (11) 54
For example, when faced with a SSNIP at the wholesale level, retail operators using
those services may (depending on the relative share of this wholesale inputs in the
retail price) need to pass this price increase on to end-users, which would mean a
decrease in demand in favour of integrated operators and, therefore, less demand for
indirect access wholesale services. This would have repercussions on the profits for
the operator providing such services, possibly making an increase in wholesale prices
not profitable, although this would also depend on the balance between the integrated
wholesale suppliers overall wholesale/retail profits. This competitive situation is shown
in the following illustration:
Indirect price constraints
Assumptions:
1. In the wholesale market there is a single monopolistic undertaking that sells to 2 companies :(A and B) at the retail level;
2. The mobile operator is a vertically integrated undertaking that has a wholesale division and a retail division
that competes with A and B.
3. They compete on price (Bertrand competition), therefore the result is that, in the retail market, the three companies set
the same price P and demand is divided between the 3.
4. The wholesale input cost represents a relevant share of the retail price.
In this scenario, if the monopoly wanted to raise prices for the wholesale service, companies A and B would have to set price s
at P 1 >P, thereby losing all demand and this would go to the mobile undertaking. Therefore, in this scenario, competition at
the retail level restricts the monopolist’s ability to act at the wholesale level.
Alternative retail
undertaking A
Fixed wholesale
operator
(monopolist)
Alternative retail
undertaking B
Mobile operator
(wholesale division)
Mobile operator
(retail division)
(P;Q/3) (P;Q/3) (P;Q/3)
Although realistically it is much more complicated than illustrated above, the model
shows that, under certain circumstances, a competitive retail market could conceivably
discipline the behaviour of a monopoly in the upstream market. In that case, self-supply
should be taken into account for wholesale market analysis 61 . The consequences of
this decision could be that the market would be broader since mobile operators would
61 For a more detailed analysis of this question refer to: BoR (10) 09 BEREC report on self supply.
Wholesale Market
Retail Market
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