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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, 2007. "Testing the "waterbed" effect in mobile telephony," LSE Research Online Documents on Economics 19680, London School of Economics and Political Science, LSE Library.
  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. Wilko Bolt & Alexander F. Tieman, 2005. "Social Welfare and Cost Recovery in Two-Sided Markets," IMF Working Papers 05/194, International Monetary Fund.
  4. 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.
  5. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, vol. 71(3), pages 413-420, June.
  6. Lopez, Angel & Rey, Patrick, 2009. "Foreclosing Competition through Access Charges and Price Discrimination," TSE Working Papers 09-056, Toulouse School of Economics (TSE), revised Feb 2012.
  7. Schiff Aaron, 2008. "The "Waterbed" Effect and Price Regulation," Review of Network Economics, De Gruyter, vol. 7(3), pages 1-23, September.
  8. Joan Calzada & Tommaso M. Valletti, 2008. "Network Competition and Entry Deterrence," Economic Journal, Royal Economic Society, vol. 118(531), pages 1223-1244, 08.
  9. 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.
  10. Hurkens, Sjaak & Lopez, Angel, 2010. "Mobile termination, network externalities, and consumer expectations," IESE Research Papers D/850, IESE Business School.
  11. Dessein, Wouter, 2003. " Network Competition in Nonlinear Pricing," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 593-611, Winter.
  12. Armstrong, Mark & Wright, Julian, 2007. "Mobile call termination in the UK," MPRA Paper 2344, University Library of Munich, Germany.
  13. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, vol. 86(1), pages 107-112, January.
  14. 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.
  15. 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.
  16. de Bijl, Paul W. J. & Peitz, Martin, 2004. "Dynamic regulation and entry in telecommunications markets: a policy framework," Information Economics and Policy, Elsevier, vol. 16(3), pages 411-437, September.
  17. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  18. Dessein, Wouter, 2004. "Network competition with heterogeneous customers and calling patterns," Information Economics and Policy, Elsevier, vol. 16(3), pages 323-345, September.
  19. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages F270-F307, 06.
  20. Hahn, Jong-Hee, 2004. "Network competition and interconnection with heterogeneous subscribers," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 611-631, May.
  21. Poletti, Stephen & Wright, Julian, 2004. "Network interconnection with participation constraints," Information Economics and Policy, Elsevier, vol. 16(3), pages 347-373, September.
  22. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  23. 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.
  24. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
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Citations

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Cited by:
  1. Sjaak Hurkens & Doh-Shin Jeon, 2009. "Mobile Termination and Mobile Penetration," Working Papers 393, Barcelona Graduate School of Economics.
  2. Sjaak Hurkens & Ángel L. López, 2010. "Mobile Termination, Network Externalities, and Consumer Expectations," Working Papers 441, Barcelona Graduate School of Economics.
  3. 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.
  4. Hoernig, Steffen, 2014. "Competition between multiple asymmetric networks: Theory and applications," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 57-69.
  5. Sjaak Hurkens & Ángel L. López, 2010. "Mobile Termination, Network Externalities, and Consumer Expectations," UFAE and IAE Working Papers 812.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  6. Ingo Vogelsang, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, Lucius & Lucius, vol. 64(3), pages 193-269.
  7. Hurkens, Sjaak & Jeon, Doh-Shin, 2009. "Mobile termination and mobile penetration," IESE Research Papers D/816, IESE Business School.

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