Question

When European consumers could finally use their mobile phones while traveling abroad, wireless users who roamed outside their home countries were sometimes shocked to return home to see very large mobile phone bills. These high bills resulted from roaming charges imposed by their home wireless carrier for using wireless networks in other countries. In 2016, the European Union (EU) imposed limits on roaming charges for mobile phones. What sources of market failure are most likely to be their justification for intervention? Select one:

a. Network effects and economies of scale
b. Economies of scale and learning effects
c. Taste-based loyalty and uninformed consumers
d. Uninformed consumers and switching costs
e. Proprietary technology and switching costs

Answer 1

The EU's imposition of limits on mobile phone roaming charges can be attributed to market failures like 'uninformed consumers' and 'switching costs', which prevent efficient resource allocation by causing unexpectedly high bills and making it difficult for consumers to switch providers. Therefore correct option is D

Step-by-step explanation:

The European Union's intervention to impose limits on roaming charges for mobile phones can be justified by several sources of market failure. In this context, the justifications most likely to be their reason for intervention are: 'd. Uninformed consumers and switching costs'

Uninformed consumers may not be fully aware of the costs associated with roaming services when traveling abroad, leading to unexpected high bills. Additionally, switching costs make it difficult for consumers to switch to alternative providers with better international roaming offers, as it may involve changing their phone numbers, facing contract termination fees, or other inconveniences. These factors can prevent the efficient allocation of resources, where consumers might otherwise choose more reasonably priced services or providers would be incentivized to offer better roaming deals.