The Role of Social Networks on Regulation in the Telecommunication Industry
AbstractThis paper studies the welfare implications of equilibrium behavior in a market characterized by competition between two interconnected telecommunication firms, subject to constraints: the customers belong to a social network. It also shows that social networks matter because equilibrium prices and welfare critically depend on how people are socially related. Next, the model is used to study effectiveness of alternative regulatory schemes. The standard regulated environement, in which the authority defines interconnection ac cess charges as being equal to marginal costs and final prices are left to the market, is considered as a benchmark. Then, we focus on the performance of two different regulatory interventions. First, access prices are set below marginal costs to foster competition. Second, switching costs are reduced to intensify competition. The results show that the second strategy is more efective to obtain equilibrium prices closer to Ramsey's level.
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Bibliographic InfoPaper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 350.
Date of creation: 2009
Date of revision:
Access charges; social networks; random regular graphs;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D60 - Microeconomics - - Welfare Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-09 (All new papers)
- NEP-COM-2009-05-09 (Industrial Competition)
- NEP-GTH-2009-05-09 (Game Theory)
- NEP-MIC-2009-05-09 (Microeconomics)
- NEP-NET-2009-05-09 (Network Economics)
- NEP-REG-2009-05-09 (Regulation)
- NEP-URE-2009-05-09 (Urban & Real Estate Economics)
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.:
- de Bijl,Paul & Peitz,Martin, 2003.
"Regulation and Entry into Telecommunications Markets,"
Cambridge University Press, number 9780521808378, October.
- de Bijl,Paul & Peitz,Martin, 2008. "Regulation and Entry into Telecommunications Markets," Cambridge Books, Cambridge University Press, number 9780521066631, October.
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