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An Economic Analysis of the Receiver Pays Principle

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  • Jeong-Yoo Kim

    (Dongguk University)

  • Yoonsung Lim

    (Dongduk Women's University)

Abstract

This paper is to examine the effect of the receiver pays principle (RPP) on the calling price, social welfare and interconnection charge. A significant trouble with introducing this system in telecommunications pricing is the possibility that the receiving party may refuse to receive a call if the charge he has to bear is very high. We find the condition for no calls to be refused and show that the profit maximizing prices charged to the calling party and the receiving party must satisfy this condition. We demonstrate that the calling price under RPP must be lower than the price under the caller pays principle (CPP), that the profit of a firm will be increased under RPP, but that the consumer surplus will not necessarily be increased under RPP despite the lowered calling price. Also, we show that, if the demand function is linear, the reciprocal interconnection charge under RPP is higher than under CPP.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0334.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0334

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  1. Gans, J.S. & King, S.P., 2000. "Using 'Bill and Keep' Interconnect Arrangements to Soften Network Competiti on," Department of Economics - Working Papers Series, The University of Melbourne 739, The University of Melbourne.
  2. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(448), pages 545-64, May.
  3. Nicholas Economides & Giuseppe Lopomo & Glenn Woroch, 1997. "Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing," Industrial Organization, EconWPA 9701001, EconWPA.
  4. Lyn Squire, 1973. "Some Aspects of Optimal Pricing for Telecommunications," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 4(2), pages 515-525, Autumn.
  5. Gans, Joshua S. & King, Stephen P., 2000. "Mobile network competition, customer ignorance and fixed-to-mobile call prices," Information Economics and Policy, Elsevier, Elsevier, vol. 12(4), pages 301-327, December.
  6. repec:eee:ecolet:v:71:y:2001:i:3:p:413-42 is not listed on IDEAS
  7. 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.
  8. Acton, Jan Paul & Vogelsang, Ingo, 1992. "Telephone Demand over the Atlantic: Evidence from Country-Pair Data," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 40(3), pages 305-23, September.
  9. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
  10. Doyle, Chris & Smith, Jennifer C., 1998. "Market structure in mobile telecoms: qualified indirect access and the receiver pays principle," Information Economics and Policy, Elsevier, Elsevier, vol. 10(4), pages 471-488, December.
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Cited by:
  1. Hoernig, Steffen, 2014. "Competition between multiple asymmetric networks: Theory and applications," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 32(C), pages 57-69.
  2. Doh-Shin Jeon & Jean-Jacques Laffont & Jean Tirole, 2004. "On the Receiver-Pays Principle," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 85-110, Spring.
  3. Ulrich Berger, 2003. "Two-way interconnection and the collusive role of the access charge," Industrial Organization, EconWPA 0303011, EconWPA.
  4. Steffen Hoernig, 2014. "Going beyond Duopoly: Connectivity Breakdowns under Receiving Party Pays," FEUNL Working Paper Series wp585, Universidade Nova de Lisboa, Faculdade de Economia.
  5. Luis López, Ángel, 2011. "Mobile termination rates and the receiver-pays regime," Information Economics and Policy, Elsevier, Elsevier, vol. 23(2), pages 171-181, June.
  6. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  7. Catia Felisberto & Matthias Finger & Beat Friedli & Daniel Kraehenbuehl & Urs Trinkner, 2005. "Pricing the last mile in the postal sector," Working Papers, Swiss Economics 0003, Swiss Economics, revised Dec 2005.
  8. Basalisco, Bruno, 2012. "The effect of user interaction on the demand for mobile text messages: Evidence from cross-country data," Information Economics and Policy, Elsevier, Elsevier, vol. 24(2), pages 132-144.
  9. Ulrich Berger, 2004. "Access Charges in the Presence of Call Externalities," Industrial Organization, EconWPA 0408009, EconWPA, revised 31 Aug 2004.
  10. Hoernig, Steffen, 2008. "Tariff-Mediated Network Externalities: Is Regulatory Intervention Any Good?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6866, C.E.P.R. Discussion Papers.
  11. Hoernig, Steffen, 2006. "On-Net and Off-Net Pricing on Asymmetric Telecommunications Networks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5588, C.E.P.R. Discussion Papers.
  12. MacDonald, Ian A. & Meriluoto, Laura, 2005. "Efficient usage and access pricing in telephone networks," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 23(7-8), pages 615-623, September.
  13. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
  14. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, Elsevier, vol. 86(1), pages 107-112, January.
  15. Edmond Baranes & Laurent Flochel, 2008. "Competition in telecommunication networks with call externalities," Journal of Regulatory Economics, Springer, Springer, vol. 34(1), pages 53-74, August.
  16. Cambini, Carlo & Valletti, Tommaso, 2005. "Information Exchange and Competition in Communications Networks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5031, C.E.P.R. Discussion Papers.
  17. Ulrich Berger, 2004. "Bill-and-Keep vs. Cost-Based Access Pricing Revisited," Industrial Organization, EconWPA 0408002, EconWPA.

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