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Telecommunication Network Competition: An Equilibrium Analysis

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  • Ricardo Raineri
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    Abstract

    The paper analyzes calling party pays access pricing policies in a General Equilibrium two ways access charge model with consumers that choose between different telecommunication providers, and benefit from making calls to other consumers and from the calls that they receive. We obtain that agents' network decision may leads to an inefficient industry structure where from a social point of view the network competitively chosen by the agents is an inferior one. Under ad-hoc parameter values we obtain that if each telecommunication company faces a fixed cost, becomes of higher efficient to finance this cost through a fixed charge on the telephone line, an access charge, and setting telecommunication companies interconnection charges equal to each company interconnection marginal cost, where policies that finance fixed or common costs by increasing interconnection charges lead to less efficient allocations. And also we obtain that if the companies have different interconnection marginal cost, interconnection charge differences should be transferred to the final consumer prices, and interconnection charges should be adjusted to the companies' interconnection marginal costs

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    File URL: http://repec.org/esLATM04/up.13502.1081985508.pdf
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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 182.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:latm04:182

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    Related research

    Keywords: Access Charge; Telecommunication; Monopoly;

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    1. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
    2. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    3. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
    4. Nicholas Economides & Lawrence J. White, 1995. "Access and Interconnection Pricing: How Efficient is the Efficient Component Pricing Rule?," Working Papers 95-04, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Dessein, Wouter, 2003. " Network Competition in Nonlinear Pricing," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 593-611, Winter.
    6. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
    7. Sharkey,William W., 1983. "The Theory of Natural Monopoly," Cambridge Books, Cambridge University Press, number 9780521271943, October.
    8. Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer, vol. 14(1), pages 1-25, February.
    9. S. J. Liebowitz & Stephen E. Margolis, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-150, Spring.
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