Network Competition with Income Effects
AbstractI generalize the workhorse model of network competition to include income effects in call demand. Empirical work has shown call demand to increase significantly with income. For any positive income effect, network operators prefer a termination rate above marginal cost if networks are sufficiently differentiated. This holds with or without call price discrimination. Under price discrimination, the networks charge a lower price for calls within the own network (on-net) than to other networks (off-net). Income effects thus deliver theoretical results consistent with stylized facts about call prices and in line with regulatory concern about excessive termination rates.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 903.
Length: 39 pages
Date of creation: 29 Feb 2012
Date of revision:
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Income effects; Network competition; Termination-based price discrimination; Two-part tariffs; Profit neutrality; Termination rates;
Find related papers by JEL classification:
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
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.:
- Cambini, Carlo & Valletti, Tommaso, 2003.
"Investments and Network Competition,"
CEPR Discussion Papers
3829, C.E.P.R. Discussion Papers.
- Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
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