Mobile Termination, Network Externalities, and Consumer Expectations
AbstractWe re-examine the literature on mobile termination in the presence of network externalities. Externalities arise when ﬁrms discriminate between on- and oﬀ-net calls or when subscription demand is elastic. This literature predicts that proﬁt decreases and consumer surplus increases in termination charge in a neighborhood of termination cost. This creates a puzzle since in reality we see regulators worldwide pushing termination rates down while being opposed by network operators. We show that this puzzle is resolved when consumers expectations are assumed passive but required to be fulﬁlled in equilibrium (as deﬁned by Katz and Shapiro, AER 1985), instead of being rationally responsive to non-equilibrium prices, as assumed until now.
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Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 441.
Date of creation: Mar 2010
Date of revision:
Networks; Rational Expectations; Access Pricing; Interconnection; Regulation; Telecommunications;
Find related papers by JEL classification:
- D4 - Microeconomics - - Market Structure and Pricing
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- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
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