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Sender or Receiver: Who Should Pay to Exchange an Electronic Message?

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Author Info

  • Benjamin E. Hermalin

    ()
    (University of California, Berkeley)

  • Michael L. Katz

    ()
    (University of California, Berkeley)

Abstract

We examine the pricing implications of call externalities, the benefits enjoyed by the recipient of a message sent by another user. We show that, with or without a network-profitability constraint, efficient pricing requires consideration of demands, as well as costs. We present conditions under which equal charges for sending and receiving calls maximize welfare and profits. We also present conditions under which the receiving party's subsidizing the sender maximizes welfare and profits. Last, we show that menus of pricing options can increase welfare and profits. None of these findings holds in the absence of call externalities.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 35 (2004)
Issue (Month): 3 (Autumn)
Pages: 423-447

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Handle: RePEc:rje:randje:v:35:y:2004:3:p:423-447

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Cited by:
  1. Frans Saxén, 2014. "The No Surcharge Rule and Merchant Competition," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 39-66, March.
  2. Sjaak Hurkens & Doh-Shin Jeon, 2009. "Mobile termination and mobile penetration," Economics Working Papers 1166, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Hoernig, Steffen, 2010. "Competition Between Multiple Asymmetric Networks: Theory and Applications," CEPR Discussion Papers 8060, C.E.P.R. Discussion Papers.
  4. Cambini, Carlo & Valletti, Tommaso, 2005. "Information Exchange and Competition in Communications Networks," CEPR Discussion Papers 5031, C.E.P.R. Discussion Papers.
  5. Wilko Bolt & Sujit Chakravorti, 2008. "Consumer choice and merchant acceptance of payment media," Working Paper Series WP-08-11, Federal Reserve Bank of Chicago.
  6. Simon P. Anderson & André De Palma, 2008. "Information Congestion," Working Papers hal-00349516, HAL.
  7. Christoph Engel, 2007. "Competition in a Pure World of Internet Telephony," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2007_1, Max Planck Institute for Research on Collective Goods.
  8. Sjaak Hurkens & Ángel Luis López, 2010. "Mobile Termination and Consumer Expectations under the Receiver-Pays Regime," Working Papers 10-12, NET Institute.
  9. Baranes, Edmond & Poudou, Jean-Christophe, 2011. "Internet access and investment incentives for broadband service providers," 22nd European Regional ITS Conference, Budapest 2011: Innovative ICT Applications - Emerging Regulatory, Economic and Policy Issues 52196, International Telecommunications Society (ITS).
  10. Doh-Shin Jeon & Sjaak Hurkens, 2007. "A Retail Benchmarking Approach to Efficient Two-way Access Pricing: Two-Part Tariffs," Working Papers 07-11, NET Institute, revised Sep 2007.
  11. Michael L. Katz, 2005. "What do we know about interchange fees and what does it mean for public policy? : commentary on Evans and Schmalensee," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 121-137.
  12. Sjaak Hurkens & Doh-Shin Jeon, 2008. "A Retail Benchmarking Approach to Efficient Two-Way Access Pricing: Termination-Based Price Discrimination with Elastic Subscription Demand," Working Papers 08-41, NET Institute, revised Nov 2008.
  13. Bolt, Wilko & Tieman, Alexander F., 2008. "Heavily skewed pricing in two-sided markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1250-1255, September.

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