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Tariff-Mediated Network Externalities: Is Regulatory Intervention Any Good?

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  • Hoernig, Steffen

Abstract

Mobile phone networks' practice of charging higher prices for off-net than for on-net calls has been pinpointed as the source of two competition problems: underprovision of calls and permanent disadvantages for small networks. We consider these allegations and four different remedies: limiting on/off-net differentials or off-net margins, lower termination fees, and asymmetric termination fees. In all cases a trade-off has to be made between efficiency and networks' profits on the one hand, and consumer surplus on the other. Indeed, the total welfare effects of regulating on/off-net differentials are ambiguous and depend on demand characteristics.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6866.

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Date of creation: Jun 2008
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Handle: RePEc:cpr:ceprdp:6866

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Related research

Keywords: Network competition; on/off-net differentials; retail price controls; termination fees;

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References

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  1. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
  2. Martin Peitz, 2005. "Asymmetric Regulation of Access and Price Discrimination in Telecommunications," Journal of Regulatory Economics, Springer, vol. 28(3), pages 327-343, November.
  3. Hoernig, Steffen, 2006. "On-Net and Off-Net Pricing on Asymmetric Telecommunications Networks," CEPR Discussion Papers 5588, C.E.P.R. Discussion Papers.
  4. de Bijl,Paul & Peitz,Martin, 2003. "Regulation and Entry into Telecommunications Markets," Cambridge Books, Cambridge University Press, number 9780521808378, December.
  5. 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.
  6. 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.
  7. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, vol. 86(1), pages 107-112, January.
  8. Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer, vol. 14(1), pages 1-25, February.
  9. Gabrielsen, Tommy Staahl & Vagstad, Steinar, 2008. "Why is on-net traffic cheaper than off-net traffic Access markup as a collusive device," European Economic Review, Elsevier, vol. 52(1), pages 99-115, January.
  10. 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.
  11. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages F270-F307, 06.
  12. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer, vol. 22(1), pages 27-46, February.
  13. Armstrong, Mark & Wright, Julian, 2007. "Mobile call termination in the UK," MPRA Paper 2344, University Library of Munich, Germany.
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Cited by:
  1. Zucchini, Leon & Claussen, Jörg & Trüg, Moritz, 2013. "Tariff-mediated network effects versus strategic discounting: Evidence from German mobile telecommunications," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 751-759.
  2. repec:lmu:msmdpa:12688 is not listed on IDEAS
  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)," CEPR Discussion Papers 7730, C.E.P.R. Discussion Papers.

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