Transaction vs. switching costs—Comparison of three core mechanisms for mobile markets Arturo Basaure a,b,n , Henna Suomi a , Heikki Hämmäinen a a Department of Communications and Networking, Aalto University School of Electrical Engineering (aalto.fi, comnet.aalto.fi), PO Box 13000, FI-00076 Aalto, Finland b Department of Industrial and Systems Engineering, Pontificia Universidad Católica de Chile, Avda. Vicuña Mackenna 4860, 7820436 Macul, Santiago, Chile article info Keywords: Inter-MNO transaction costs End-user switching costs Dynamic spectrum access National roaming End-user multihoming Cooperation Competition Wholesale and retail trading abstract The fast growth in demand of mobile Internet urges mobile network operators (MNOs) to rapidly increase the wireless network capacity. For this purpose, governments are allo- cating large parts of the valuable low frequency spectrum to MNOs. This expansion also adds pressure to better optimize the intra-MNO and inter-MNO spectrum usage. Reg- ulators are concerned about problems such as network blackouts, coverage disparities and congestion. Latest technology developments provide new mechanisms to address these problems through two alternative evolution paths, operator-driven and user-driven. The operator-driven path permits operators to trade network capacity and spectrum through, for instance, national roaming and dynamic spectrum access mechanisms, respectively. On the other hand, the user-driven path enables users (and traffic) to rapidly switch between networks through an end-user multihoming mechanism which intensifies retail competi- tion. MNOs are reluctant to adopt these mechanisms if they involve risks. However, regulators can facilitate the deployment of these mechanisms by guiding the level of inter- MNO transaction costs and end-user switching costs. This paper analyzes the market dynamics of these three core mechanisms by employing agent-based modeling. Initial results indicate that each mechanism improves allocative efficiency on a dynamic basis and that such mechanisms become necessary if the current static market model based on vertically integrated MNOs is not able to meet the requirements of service quality, capacity and coverage. One promising use case of the proposed mechanisms is the indoor femto-cellular deployment which suffers from coverage disparity due to static single- MNO base stations. Moreover, either end-user multihoming or national roaming may provide MNOs a feasible business case for building indoor infrastructure by solving cov- erage disparity problems, by means of competition or cooperation, respectively. Dynamic spectrum access may work as an extension of the previous mechanisms for solving congestion; however, it requires higher technical and business coordination. & 2016 Elsevier Ltd. All rights reserved. Contents lists available at ScienceDirect URL: www.elsevier.com/locate/telpol Telecommunications Policy http://dx.doi.org/10.1016/j.telpol.2016.02.004 0308-5961/& 2016 Elsevier Ltd. All rights reserved. n Corresponding author. E-mail addresses: arturo.basaure@aalto.fi, afbasaure@puc.cl (A. Basaure), henna.suomi@aalto.fi (H. Suomi), heikki.hammainen@aalto.fi (H. Hämmäinen). Telecommunications Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎ Please cite this article as: Basaure, A., et al. Transaction vs. switching costs—Comparison of three core mechanisms for mobile markets. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.02.004i