Evaluating the impact of price caps - Evidence from the European roam-like-at-home regulation

Abstract

The roam-like-at-home regulation (RLAH) eliminated all mobile roaming surcharges to European consumers traveling within Europe. We measure the causal impact of the regulation on European roaming traffic, using the Rest of the World as a control group. We find large and heterogeneous effects on retail and wholesale traffic volumes and revenues. To evaluate the welfare effects of the regulation, we develop a framework that includes consumer surplus, retail and wholesale profits. The gains in consumer surplus are large, and mainly stem from data services. The consumer gains are proportionately larger in small, open economies and in countries with previously high roaming prices. Finally, total welfare increases considerably, because the consumer surplus gains outweigh profit losses. As such, the removal of market power more than compensates for a distortion from a possible overconsumption at zero surcharges.