On the Receiver-Pays Principle
AbstractThis article extends the theory of network competition by allowing receivers to derive a surplus from receiving calls and to affect the volume of communications by hanging up. We investigate how receiver charges affect internalization of the call externality. When the receiver charge and the termination charge are both regulated, there exists an efficient equilibrium. When reception charges are market determined, each network finds it optimal to set the prices for calling and reception at its off-net costs. The symmetric equilibrium is efficient for a proper choice of termination charge. Last, network-based price discrimination creates strong incentives for connectivity breakdowns.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 35 (2004)
Issue (Month): 1 (Spring)
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Other versions of this item:
- D4 - Microeconomics - - Market Structure and Pricing
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
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"An Economic Analysis of the Receiver Pays Principle,"
Econometric Society World Congress 2000 Contributed Papers
0334, Econometric Society.
- Kim, Jeong-Yoo & Lim, Yoonsung, 2001. "An economic analysis of the receiver pays principle," Information Economics and Policy, Elsevier, vol. 13(2), pages 231-260, June.
- 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.
- 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.
- 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.
- Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer, vol. 14(1), pages 1-25, February.
- Cremer, Jacques & Rey, Patrick & Tirole, Jean, 2000.
"Connectivity in the Commercial Internet,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 48(4), pages 433-72, December.
- 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.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
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