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Termination fees revisited

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  • Jullien, Bruno
  • Rey, Patrick
  • Sand-Zantman, Wilfried

Abstract

We reconsider the question of the optimal level of termination fees between communication networks in the context of heterogeneous usage and elastic participation. The interaction between these two features yields new insights; in our model: i) The profit maximizing reciprocal termination fee is above marginal cost; ii) the welfare maximizing termination fee is also above cost; iii) the welfare-maximizing termination fee is below the profit-maximizing one in the absence of termination-based price discrimination, but can be above it otherwise.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 31 (2013)
Issue (Month): 6 ()
Pages: 738-750

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Handle: RePEc:eee:indorg:v:31:y:2013:i:6:p:738-750

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Termination fee; Communication; Network; Mobile;

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References

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  1. Christos Genakos & Tommaso Valletti, 2011. "Seesaw in the Air: Interconnection Regulation and the Structure of Mobile Tariffs," CEP Discussion Papers dp1045, Centre for Economic Performance, LSE.
  2. Doh-Shin Jeon & Sjaak Hurkens, 2007. "A retail benchmarking approach to efficient two-way access pricing," Economics Working Papers 1055, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Jong-Hee Hahn, 2000. "Network Competition and Interconnection with Heterogeneous Subscribers," Keele Department of Economics Discussion Papers (1995-2001) 2000/11, Department of Economics, Keele University.
  4. Bijl, P.W.J. de & Peitz, M., 2004. "Dynamic Regulation and Entry in Telecommunications Markets: A Policy Framework," Discussion Paper 2004-010, Tilburg University, Tilburg Law and Economic Center.
  5. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  6. Jullien, Bruno & Rey, Patrick & Sand-Zantman, Wilfried, 2009. "Mobile Call Termination Revisited," TSE Working Papers 10-198, Toulouse School of Economics (TSE), revised Aug 2010.
  7. Steffen Hoernig & Roman Inderst & Tommaso Valletti, 2011. "Calling Circles: Network Competition with Non-Uniform Calling Patterns," CEIS Research Paper 206, Tor Vergata University, CEIS, revised 04 Jul 2011.
  8. Calzada, Joan & Valletti, Tommaso, 2005. "Network Competition and Entry Deterrence," CEPR Discussion Papers 5381, C.E.P.R. Discussion Papers.
  9. Bolt Wilko & Tieman Alexander F., 2006. "Social Welfare and Cost Recovery in Two-Sided Markets," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-15, March.
  10. 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.
  11. Ángel L. López & Patrick Rey, 2009. "Foreclosing Competition through Access Charges and Price Discrimination," Working Papers 2009.99, Fondazione Eni Enrico Mattei.
  12. Christos Genakos & Tommaso Valletti, 2011. "Testing The “Waterbed” Effect In Mobile Telephony," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1114-1142, December.
  13. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, vol. 86(1), pages 107-112, January.
  14. Armstrong, Mark & Wright, Julian, 2007. "Mobile call termination in the UK," MPRA Paper 2344, University Library of Munich, Germany.
  15. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
  16. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
  17. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
  18. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  19. Poletti, Stephen & Wright, Julian, 2004. "Network interconnection with participation constraints," Information Economics and Policy, Elsevier, vol. 16(3), pages 347-373, September.
  20. Wouter Dessein, 2000. "Network Competition in Nonlinear Pricing," CIG Working Papers FS IV 00-22, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  21. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages F270-F307, 06.
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  23. Schiff Aaron, 2008. "The "Waterbed" Effect and Price Regulation," Review of Network Economics, De Gruyter, vol. 7(3), pages 1-23, September.
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Citations

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Cited by:
  1. Hurkens, Sjaak & Jeon, Doh-Shin, 2009. "Mobile Termination and Mobile Penetration," IDEI Working Papers 575, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Hurkens, Sjaak & Lopez, Angel, 2010. "Mobile termination, network externalities, and consumer expectations," IESE Research Papers D/850, IESE Business School.
  3. Christos Genakos & Tommaso Valletti, 2008. "Testing the “Waterbed” Effect in Mobile Telephony," CEIS Research Paper 110, Tor Vergata University, CEIS, revised 11 Jul 2008.
  4. Hoernig, Steffen, 2010. "Competition Between Multiple Asymmetric Networks: Theory and Applications," CEPR Discussion Papers 8060, C.E.P.R. Discussion Papers.
  5. Sjaak Hurkens & Doh-Shin Jeon, 2009. "Mobile Termination and Mobile Penetration," Working Papers 393, Barcelona Graduate School of Economics.
  6. Sjaak Hurkens & Ángel L. López, 2010. "Mobile Termination, Network Externalities, and Consumer Expectations," Working Papers 441, Barcelona Graduate School of Economics.

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