This paper studies the welfare implications of equilibrium behavior in a market characterized by competition between two interconnected telecommunication ?rms, 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 e¤ectiveness of alternative regulatory schemes. The standard regulated environement, in which the authority de?nes interconnection ac cess charges as being equal to marginal costs and ?nal prices are left to the market, is considered as a benchmark . Then, we focus on the performance of two di¤erent 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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Paper provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number
350.
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
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