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Regulation and Internet Access in Germany

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  • Michael Reutter
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    Abstract

    We explain the recent events in the German market for online access using a model of a regulated monopoly renting phone lines to retailers. Retailers offer either a linear or a flat tariff to consumers. Consumer heterogeneity leads to adverse selectiion. We show why market entry for flatrate firms is difficult under a linear wholesale tariff. With both a linear and a flat wholesale tariff the consumer market shows a mixture of tariffs as well. When marginal costs are zero it is optimal to have a wholesale flatrate only. However, marginal moves towards this equilibrium are not always welfare improving.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2001/wp-cesifo-2001-05/cesifo_wp480.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 480.

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    Date of creation: 2001
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    Handle: RePEc:ces:ceswps:_480

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    Keywords: Internet; flatrate; adverse selection;

    References

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    1. Jeffrey K. MacKie-Mason & Hal Varian, 1994. "Economic FAQs About the Internet," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(3), pages 75-96, Summer.
    2. Nicholas Economides, 1995. "The Economics of Networks," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995.
    3. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195115826, October.
    4. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(4), pages 515-39, October.
    5. Mason, Robin, 2000. "Simple competitive Internet pricing," European Economic Review, Elsevier, Elsevier, vol. 44(4-6), pages 1045-1056, May.
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    Cited by:
    1. Joan Calzada Aymerich, 2003. "Access by Capacity and Peak-Load Pricing," Working Papers in Economics, Universitat de Barcelona. Espai de Recerca en Economia 108, Universitat de Barcelona. Espai de Recerca en Economia.
    2. Joan Calzada, 2007. "Capacity-based versus time-based access charges in telecommunications," Journal of Regulatory Economics, Springer, Springer, vol. 32(2), pages 153-172, October.

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