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Customer or Complementor? Intercarrier Compensation with Two‐Sided Benefits

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  • Benjamin E. Hermalin
  • Michael L. Katz

Abstract

Both senders and receivers of telecommunications messages derive benefits, creating the possibility of externalities. We explore whether intercarrier compensation (i.e., access charges) can induce carriers to internalize these external effects. In important settings, access charges are irrelevant. Where they are relevant, access charges can induce an efficient ratio of off-net send and receive prices--taking their sum as given--but cannot induce the correct sum. The latter requires a mechanism for cross-carrier internalization, such as repeat play or pricing policies contingent on one another. Lastly, non-zero access charges can be efficient even in highly symmetrical situations.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 20 (2011)
Issue (Month): 2 (06)
Pages: 379-408

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Handle: RePEc:bla:jemstr:v:20:y:2011:i:2:p:379-408

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Cited by:
  1. David Harbord & Steffen Hoernig, 2012. "Welfare Analysis of Regulating Mobile Termination Rates in the UK with an Application to the Orange/T-Mobile Merger," FEUNL Working Paper Series wp571, Universidade Nova de Lisboa, Faculdade de Economia.
  2. Ingo Vogelsang, 2013. "The Endgame of Telecommunications Policy? A Survey," CESifo Working Paper Series 4545, CESifo Group Munich.
  3. Bourreau, Marc & Cambini, Carlo & Hoernig, Steffen, 2013. "Fixed-Mobile Integration," CEPR Discussion Papers 9361, C.E.P.R. Discussion Papers.

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