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An economic analysis of the receiver pays principle

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  • Kim, Jeong-Yoo
  • Lim, Yoonsung

Abstract

This paper is to examine the effect of the receiver pays principle (RPP) on the calling price, social welfare and interconnection charge. A significant trouble with introducing this system in telecommunications pricing is the possibility that the receiving party may refuse to receive a call if the charge he has to bear is very high. We find the condition for no calls to be refused and show that the profit maximizing prices charged to the calling party and the receiving party must satisfy this condition. We demonstrate that the calling price under RPP must be lower than the price under the caller pays principle (CPP), that the profit of a firm will be increased under RPP, but that the consumer surplus will not necessarily be increased under RPP despite the lowered calling price. Also, we show that, if the demand function is linear, the reciprocal interconnection charge under RPP is higher than under CPP.

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Bibliographic Info

Article provided by Elsevier in its journal Information Economics and Policy.

Volume (Year): 13 (2001)
Issue (Month): 2 (June)
Pages: 231-260

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Handle: RePEc:eee:iepoli:v:13:y:2001:i:2:p:231-260

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Web page: http://www.elsevier.com/locate/inca/505549

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References

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  1. Gans, J.S. & King, S.P., 2000. "Mobile Network Competition, Customer Ignorance and Fixed-to-Mobile Call Prices," Department of Economics - Working Papers Series 734, The University of Melbourne.
  2. Nicholas Economides & Giuseppe Lopomo & Glenn Woroch, 1997. "Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing," Industrial Organization 9701001, EconWPA.
  3. Gans, J.S. & King, S.P., 2000. "Using 'Bill and Keep' Interconnect Arrangements to Soften Network Competiti on," Department of Economics - Working Papers Series 739, The University of Melbourne.
  4. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
  5. Doyle, Chris & Smith, Jennifer C., 1998. "Market structure in mobile telecoms: qualified indirect access and the receiver pays principle," Information Economics and Policy, Elsevier, vol. 10(4), pages 471-488, December.
  6. repec:eee:ecolet:v:71:y:2001:i:3:p:413-42 is not listed on IDEAS
  7. Acton, Jan Paul & Vogelsang, Ingo, 1992. "Telephone Demand over the Atlantic: Evidence from Country-Pair Data," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 305-23, September.
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Citations

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Cited by:
  1. Luis López, Ángel, 2011. "Mobile termination rates and the receiver-pays regime," Information Economics and Policy, Elsevier, vol. 23(2), pages 171-181, June.
  2. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, vol. 86(1), pages 107-112, January.
  3. Ulrich Berger, 2004. "Access Charges in the Presence of Call Externalities," Industrial Organization 0408009, EconWPA, revised 31 Aug 2004.
  4. Cambini, Carlo & Valletti, Tommaso, 2005. "Information Exchange and Competition in Communications Networks," CEPR Discussion Papers 5031, C.E.P.R. Discussion Papers.
  5. Hoernig, Steffen, 2008. "Tariff-Mediated Network Externalities: Is Regulatory Intervention Any Good?," CEPR Discussion Papers 6866, C.E.P.R. Discussion Papers.
  6. Steffen Hoernig, 2014. "Going beyond Duopoly: Connectivity Breakdowns under Receiving Party Pays," FEUNL Working Paper Series wp585, Universidade Nova de Lisboa, Faculdade de Economia.
  7. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
  8. Catia Felisberto & Matthias Finger & Beat Friedli & Daniel Kraehenbuehl & Urs Trinkner, 2005. "Pricing the last mile in the postal sector," Working Papers 0003, Swiss Economics, revised Dec 2005.
  9. Doh Shin Jeon & Jean Jacques Laffont & Jean Tirole, 2001. "On the receiver pays principle," Economics Working Papers 561, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Hoernig, Steffen, 2006. "On-Net and Off-Net Pricing on Asymmetric Telecommunications Networks," CEPR Discussion Papers 5588, C.E.P.R. Discussion Papers.
  11. Basalisco, Bruno, 2012. "The effect of user interaction on the demand for mobile text messages: Evidence from cross-country data," Information Economics and Policy, Elsevier, vol. 24(2), pages 132-144.
  12. MacDonald, Ian A. & Meriluoto, Laura, 2005. "Efficient usage and access pricing in telephone networks," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 615-623, September.
  13. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  14. Hoernig, Steffen, 2010. "Competition Between Multiple Asymmetric Networks: Theory and Applications," CEPR Discussion Papers 8060, C.E.P.R. Discussion Papers.
  15. Edmond Baranes & Laurent Flochel, 2008. "Competition in telecommunication networks with call externalities," Journal of Regulatory Economics, Springer, vol. 34(1), pages 53-74, August.
  16. Ulrich Berger, 2004. "Bill-and-Keep vs. Cost-Based Access Pricing Revisited," Industrial Organization 0408002, EconWPA.
  17. Ulrich Berger, 2003. "Two-way interconnection and the collusive role of the access charge," Industrial Organization 0303011, EconWPA.

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