The roaming regulation and the case for applying behavioural industrial organisation to EU competition policy. ESRI WP598, September 2018

McGowan, Féidhlim (2018) The roaming regulation and the case for applying behavioural industrial organisation to EU competition policy. ESRI WP598, September 2018. [Working Paper]

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Abstract

Behavioural Industrial Organisation (BIO) incorporates psychological insights into traditional models of market interactions between firms and consumers. These models often have high predictive power relative to models based on the classical paradigm of the ‘rational’ consumer in markets where the good has multiple features and at least a subset of consumers display biases such as inattention, overconfidence and self-control problems (present bias). This paper uses the Roaming Regulation as a case study to demonstrate the value of BIO to competition policy makers in such markets. To motivate the appropriateness of BIO models to roaming, the phenomenon of ‘bill-shock’ is first shown to be plausibly caused or exacerbated by these biases. The paper discusses how insights from BIO models can inform an understanding of ‘demand substitution’, and by deduction how policymakers conceive of market power. Finally, a counterfactual examination of two key junctures in the Roaming Regulation policy cycle highlights how the application of BIO is conducive to the formation of evidence-based policy.

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