The SMS bandwagon in Norway : what made the market?

Abstract

Short Message Service (SMS) has been an overwhelming success in Europe, substantially larger than in the United States. In relative terms Norway represents one of the largest SMS markets in the world. The aim of the paper is to examine the relationship between economic theories of bandwagon effects, and the Norwegian mobile providers’ management of the SMS market. We narrow the focus to the problem of getting the SMS bandwagon rolling. We emphasize two features crucial to the SMS success. The first is low prices on text messaging relative to the mobile phone call charges for low-end tariffs. The second key feature is the high degree of interlinking with respect to both functionality and pricing. Both these features differ between Europe and the United States, and we argue that this might explain the difference in market development. In the SMS market the absence of regulations and ex ante superfluous functionality have ended up as ex post major successful services. This suggests that the regulator should be very careful when designing regulation regimes in bandwagon markets in order to avoid reduced innovation.