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Termination fees revisited

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  • Jullien, Bruno
  • Rey, Patrick
  • Sand-Zantman, Wilfried

Abstract

We reconsider the question of the optimal level of termination fees between communication networks in the context of heterogeneous usage and elastic participation. The interaction between these two features yields new insights; in our model: i) The profit maximizing reciprocal termination fee is above marginal cost; ii) the welfare maximizing termination fee is also above cost; iii) the welfare-maximizing termination fee is below the profit-maximizing one in the absence of termination-based price discrimination, but can be above it otherwise.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 551.

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Date of creation: Apr 2009
Date of revision: 2012
Publication status: Published in International Journal of Industrial Organization, vol.�31, n°6, 2013, p.�738-750.
Handle: RePEc:ide:wpaper:20666

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References

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  1. Poletti, Stephen & Wright, Julian, 2004. "Network interconnection with participation constraints," Information Economics and Policy, Elsevier, vol. 16(3), pages 347-373, September.
  2. Christos Genakos & Tommaso Valletti, 2011. "Seesaw in the Air: Interconnection Regulation and the Structure of Mobile Tariffs," CEP Discussion Papers dp1045, Centre for Economic Performance, LSE.
  3. Armstrong, Mark & Wright, Julian, 2007. "Mobile call termination in the UK," MPRA Paper 2344, University Library of Munich, Germany.
  4. Christos Genakos & Tommaso Valletti, 2007. "Testing the "Waterbed" Effect in Mobile Telephony," CEP Discussion Papers dp0827, Centre for Economic Performance, LSE.
  5. de Bijl, Paul W. J. & Peitz, Martin, 2004. "Dynamic regulation and entry in telecommunications markets: a policy framework," Information Economics and Policy, Elsevier, vol. 16(3), pages 411-437, September.
  6. Lopez, Angel & Rey, Patrick, 2009. "Foreclosing Competition through Access Charges and Price Discrimination," IDEI Working Papers 570, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2012.
  7. Doh-Shin Jeon & Sjaak Hurkens, 2007. "A Retail Benchmarking Approach to Eficient Two-Way Access Pricing," UFAE and IAE Working Papers 717.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  8. Jullien, Bruno & Rey, Patrick & Sand-Zantman, Wilfried, 2009. "Mobile Call Termination Revisited," TSE Working Papers 10-198, Toulouse School of Economics (TSE), revised Aug 2010.
  9. Wilko Bolt & Alexander F. Tieman, 2005. "Social Welfare and Cost Recovery in Two-Sided Markets," IMF Working Papers 05/194, International Monetary Fund.
  10. 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.
  11. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, vol. 86(1), pages 107-112, January.
  12. Hahn, Jong-Hee, 2004. "Network competition and interconnection with heterogeneous subscribers," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 611-631, May.
  13. Joan Calzada & Tommaso M. Valletti, 2008. "Network Competition and Entry Deterrence," Economic Journal, Royal Economic Society, vol. 118(531), pages 1223-1244, 08.
  14. Hoernig, Steffen & Inderst, Roman & Valletti, Tommaso, 2010. "Calling Circles: Network Competition with Non-Uniform Calling Patterns," CEPR Discussion Papers 8114, C.E.P.R. Discussion Papers.
  15. Wouter Dessein, 2000. "Network Competition in Nonlinear Pricing," CIG Working Papers FS IV 00-22, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  16. 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.
  17. Dessein, Wouter, 2004. "Network competition with heterogeneous customers and calling patterns," Information Economics and Policy, Elsevier, vol. 16(3), pages 323-345, September.
  18. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  19. 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.
  20. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
  21. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  22. Schiff Aaron, 2008. "The "Waterbed" Effect and Price Regulation," Review of Network Economics, De Gruyter, vol. 7(3), pages 1-23, September.
  23. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages F270-F307, 06.
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Citations

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Cited by:
  1. Christos Genakos & Tommaso Valletti, 2011. "Testing The “Waterbed” Effect In Mobile Telephony," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1114-1142, December.
  2. Hurkens, Sjaak & Lopez, Angel, 2010. "Mobile termination, network externalities, and consumer expectations," IESE Research Papers D/850, IESE Business School.
  3. Hurkens, Sjaak & Jeon, Doh-Shin, 2009. "Mobile termination and mobile penetration," IESE Research Papers D/816, IESE Business School.
  4. Hoernig, Steffen, 2014. "Competition between multiple asymmetric networks: Theory and applications," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 57-69.
  5. Sjaak Hurkens & Ángel L. López, 2010. "Mobile Termination, Network Externalities, and Consumer Expectations," Working Papers 441, Barcelona Graduate School of Economics.
  6. Ingo Vogelsang, 2013. "The Endgame of Telecommunications Policy? A Survey," CESifo Working Paper Series 4545, CESifo Group Munich.
  7. Sjaak Hurkens & Doh-Shin Jeon, 2009. "Mobile Termination and Mobile Penetration," Working Papers 393, Barcelona Graduate School of Economics.

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