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Mobile Termination, Network Externalities, and Consumer Expectations

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  • Sjaak Hurkens
  • Ángel L. López

Abstract

We 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 Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 441.

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Date of creation: Mar 2010
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Handle: RePEc:bge:wpaper:441

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Keywords: Networks; Rational Expectations; Access Pricing; Interconnection; Regulation; Telecommunications;

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Citations

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Cited by:
  1. Hurkens, Sjaak & Jeon, Doh-Shin, 2012. "Promoting network competition by regulating termination charges," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 30(6), pages 541-552.
  2. Kongaut, Chatchai & Bohlin, Erik, 2012. "Impacts of mobile termination rates (MTRs) on retail prices: The implication for regulators," 23rd European Regional ITS Conference, Vienna 2012, International Telecommunications Society (ITS) 60348, International Telecommunications Society (ITS).
  3. Sjaak Hurkens & Ángel Luis López, 2010. "Mobile Termination and Consumer Expectations under the Receiver-Pays Regime," Working Papers, NET Institute 10-12, NET Institute.
  4. Sjaak Hurkens & Ángel Luis López, 2011. "The Welfare Effects of Mobile Termination Rate Regulation in Asymmetric Oligopolies: the Case of Spain," Working Papers, NET Institute 11-09, NET Institute.
  5. Jullien, Bruno & Rey, Patrick & Sand-Zantman, Wilfried, 2013. "Termination fees revisited," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 31(6), pages 738-750.
  6. Griva, Krina & Vettas, Nikolaos, 2011. "Price competition in a differentiated products duopoly under network effects," Information Economics and Policy, Elsevier, Elsevier, vol. 23(1), pages 85-97, March.

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