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An Economic Analysis of the Receiver Pays Principle

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Author Info
Jeong-Yoo Kim (Dongguk University)
Yoonsung Lim (Dongduk Women's University)

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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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Publisher 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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  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. [Downloadable!] (restricted)
  2. Nicholas Economides & Giuseppe Lopomo & Glenn Woroch, 1997. "Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing," Industrial Organization 9701001, EconWPA. [Downloadable!]
    Other versions:
  3. Jeffrey Rohlfs, 1974. "A Theory of Interdependent Demand for a Communications Service," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 16-37, Spring. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May. [Downloadable!] (restricted)
  6. Doyle, Chris & Smith, Jennifer C., 1998. "Market structure in mobile telecoms: qualified indirect access and the receiver pays principle," Information Economics and Policy, Elsevier, vol. 10(4), pages 471-488, December. [Downloadable!] (restricted)
  7. Lyn Squire, 1973. "Some Aspects of Optimal Pricing for Telecommunications," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 515-525, Autumn. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
    Other versions:
  2. Ulrich Berger, 2004. "Bill-and-Keep vs. Cost-Based Access Pricing Revisited," Industrial Organization 0408002, EconWPA. [Downloadable!]
  3. Hoernig, Steffen, 2008. "Tariff-Mediated Network Externalities: Is Regulatory Intervention Any Good?," CEPR Discussion Papers 6866, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Ulrich Berger, 2003. "Two-way interconnection and the collusive role of the access charge," Industrial Organization 0303011, EconWPA. [Downloadable!]
  5. Hoernig, Steffen, 2006. "On-Net and Off-Net Pricing on Asymmetric Telecommunications Networks," CEPR Discussion Papers 5588, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Ulrich Berger, 2004. "Access Charges in the Presence of Call Externalities," Industrial Organization 0408009, EconWPA, revised 31 Aug 2004. [Downloadable!]
  7. Baranes, E. & Flochel, L., 2003. "Competition and mergers in networks with call externalities," Cahiers du LASER (LASER Working Papers) 2003.07, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1. [Downloadable!]
  8. Edmond Baranes & Laurent Flochel, 2008. "Competition in telecommunication networks with call externalities," Journal of Regulatory Economics, Springer, vol. 34(1), pages 53-74, August. [Downloadable!] (restricted)
  9. Cambini, Carlo & Valletti, Tommaso, 2005. "Information Exchange and Competition in Communications Networks," CEPR Discussion Papers 5031, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Kiho Yoon, 2006. "Interconnection Economics of All-IP Networks," Review of Network Economics, Concept Economics, vol. 5(3), pages 351-365, September. [Downloadable!]
  11. repec:mop:credwp:03.10.37 is not listed on IDEAS
  12. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany. [Downloadable!]
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