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Customer or Complementor? Intercarrier Compensation with Two-Sided Benefits

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  • Hermalin, Benjamin E
  • Katz, Michael L

Abstract

Both senders and receivers of telecommunications messages derive benefits, creating the possibility of externalities. We explore whether intercarrier compensation (i.e., access charges) can induce carriers to internalize these external effects. In important settings, access charges are irrelevant. Where they are relevant, access charges can induce an efficient ratio of off-net send and receive prices--taking their sum as given--but cannot induce the correct sum. The latter requires a mechanism for cross-carrier internalization, such as repeat play or pricing policies contingent on one another. Lastly, non-zero access charges can be efficient even in highly symmetrical situations.

Suggested Citation

  • Hermalin, Benjamin E & Katz, Michael L, 2006. "Customer or Complementor? Intercarrier Compensation with Two-Sided Benefits," Competition Policy Center, Working Paper Series qt9vf0k91t, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:compol:qt9vf0k91t
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    References listed on IDEAS

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    Cited by:

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    2. Hoernig, Steffen, 2012. "The Breakdown of Connectivity Breakdowns," CEPR Discussion Papers 9189, C.E.P.R. Discussion Papers.
    3. Jonathan Sandbach & Luke van Hooft, 2010. "Using On-net / Off-net Price Differential to Measure the Size of Call Externalities and its Implications for Setting Efficient Mobile Termination Rates," Chapters, in: Morten Falch & Jan Markendahl (ed.), Promoting New Telecom Infrastructures, chapter 15, Edward Elgar Publishing.
    4. Hurkens, Sjaak & López, Ángel L., 2014. "Who Should Pay for Two-way Interconnection?," IESE Research Papers D/1102, IESE Business School.
    5. Sjaak Hurkens & Ángel Luis López, 2010. "Mobile Termination and Consumer Expectations under the Receiver-Pays Regime," Working Papers 10-12, NET Institute.
    6. Steffen Hoernig & Marc Bourreau & Carlo Cambini, 2014. "Fixed-mobile integration," Journal of Regulatory Economics, Springer, vol. 45(1), pages 57-74, February.
    7. Steffen Hoernig & Roman Inderst & Tommaso Valletti, 2014. "Calling circles: network competition with nonuniform calling patterns," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 155-175, March.
    8. Harbord, David & Hoernig, Steffen, 2010. "Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger)," MPRA Paper 21515, University Library of Munich, Germany.
    9. Hoernig, Steffen, 2016. "Going beyond duopoly: Connectivity breakdowns under receiving party pays," Information Economics and Policy, Elsevier, vol. 36(C), pages 1-9.
    10. Vogelsang Ingo, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, De Gruyter, vol. 64(3), pages 193-270, December.
    11. Greenstein Shane, 2012. "Concentration in Internet Access and Entrepreneurial Truncation of Innovation," Capitalism and Society, De Gruyter, vol. 7(1), pages 1-33, November.
    12. David Harbord & Steffen Hoernig, 2015. "Welfare Analysis of Regulating Mobile Termination Rates in the U.K," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 673-703, December.
    13. Tommaso Majer & Michele Pistollato, 2016. "Calling vs. Receiving Party Pays," Competition and Regulation in Network Industries, , vol. 17(2), pages 150-180, June.

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