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Information Exchange and Competition in Communications Networks

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  • Cambini, Carlo
  • Valletti, Tommaso

Abstract

We develop a model of information exchange between calling parties. We characterize the equilibrium when two interconnected networks compete for such users by charging both for outgoing and incoming calls. We show that networks have reduced incentives to use off-net price discrimination to induce a connectivity breakdown when calls originated and received are complements in the information exchange. This breakdown disappears if operators are allowed to negotiate reciprocal access charges. We also show that a ‘bill-and-keep’ system over access charges can approximate an efficient regime and we discuss when this system emerges from private negotiations.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5031.

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Date of creation: May 2005
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Handle: RePEc:cpr:ceprdp:5031

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Related research

Keywords: access charges; bill-and-keep; information exchange; interconnection; reception charges;

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References

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  1. Kim, Jeong-Yoo & Lim, Yoonsung, 2001. "An economic analysis of the receiver pays principle," Information Economics and Policy, Elsevier, vol. 13(2), pages 231-260, June.
  2. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
  3. Gans, J.S. & King, S.P., 2000. "Using 'Bill and Keep' Interconnect Arrangements to Soften Network Competiti on," Department of Economics - Working Papers Series 739, The University of Melbourne.
  4. Benjamin E. Hermalin & Michael L. Katz, 2004. "Sender or Receiver: Who Should Pay to Exchange an Electronic Message?," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 423-447, Autumn.
  5. Ulrich Berger, 2004. "Access Charges in the Presence of Call Externalities," Industrial Organization 0408009, EconWPA, revised 31 Aug 2004.
  6. Doh Shin Jeon & Jean Jacques Laffont & Jean Tirole, 2001. "On the receiver pays principle," Economics Working Papers 561, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer, vol. 22(1), pages 27-46, February.
  8. Berger Ulrich, 2005. "Access Charges in the Presence of Call Externalities," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-18, January.
  9. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Hurkens, Sjaak & Jeon, Doh-Shin, 2009. "Mobile Termination and Mobile Penetration," TSE Working Papers 09-070, Toulouse School of Economics (TSE).
  2. K. Andersson & � Foros & F. Steen, 2009. "Text and voice: complements, substitutes or both?," Industrial and Corporate Change, Oxford University Press, vol. 18(6), pages 1231-1247, December.
  3. 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.
  4. Ángel L. López & Patrick Rey, 2009. "Foreclosing Competition through Access Charges and Price Discrimination," Working Papers 2009.99, Fondazione Eni Enrico Mattei.
  5. Steffen Hoernig & Marc Bourreau & Carlo Cambini, 2013. "Fixed-Mobile Integration," FEUNL Working Paper Series wp574, Universidade Nova de Lisboa, Faculdade de Economia.
  6. Edmond Baranes & Laurent Flochel, 2008. "Competition in telecommunication networks with call externalities," Journal of Regulatory Economics, Springer, vol. 34(1), pages 53-74, August.
  7. Stühmeier, Torben, 2012. "Roaming and Investments in the Mobile Internet Market," DICE Discussion Papers 46, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  8. Sjaak Hurkens & Ángel Luis López, 2010. "Mobile Termination and Consumer Expectations under the Receiver-Pays Regime," Working Papers 10-12, NET Institute.
  9. Steffen Hoernig, 2014. "Going beyond Duopoly: Connectivity Breakdowns under Receiving Party Pays," FEUNL Working Paper Series wp585, Universidade Nova de Lisboa, Faculdade de Economia.
  10. Hoernig, Steffen, 2010. "Competition Between Multiple Asymmetric Networks: Theory and Applications," CEPR Discussion Papers 8060, C.E.P.R. Discussion Papers.
  11. Harbord, David & Pagnozzi, Marco, 2008. "On-Net/Off-Net Price Discrimination and 'Bill-and-Keep' vs. 'Cost-Based' Regulation of Mobile Termination Rates," MPRA Paper 14540, University Library of Munich, Germany.

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