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Mobile termination and collusion, revisited

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  • Felix Hoeffler

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn)

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    Abstract

    The standard model by Laffont, Rey and Tirole (1998) treats termination fees as an instrument to increase market power in a one-shot game of horizontal product differentiation. We offer an alternative view in an infinitely repeated Bertrand competition. We focus on symmetrical call-ing patterns and investigate simple two-part tariffs for two types, as well as general non-linear tariffs for two types and for a continuum of types. In this framework, termination fees make deviations from the collusive outcome less attractive. The optimum deviation strategy is usually to try to attract the high valuation customers since they exhibit the highest profits. Thus, a deviator will have a pool of high users which will have more outgoing than incoming calls, implying net termination payments. A cooperatively chosen termination rate can increase the deviator’s cost and thereby always stabilizes collusion.

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    File URL: http://www.coll.mpg.de/pdf_dat/2006_16online.pdf
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    Bibliographic Info

    Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2006_16.

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    Length: 32 pages
    Date of creation: Jun 2006
    Date of revision:
    Handle: RePEc:mpg:wpaper:2006_16

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    Related research

    Keywords: Two way access; mobile telecommunications; non-linear tariffs;

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    1. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, vol. 71(3), pages 413-420, June.
    2. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
    3. Peitz, Martin & Valletti, Tommaso M. & Wright, Julian, 2004. "Competition in telecommunications: an introduction," Information Economics and Policy, Elsevier, vol. 16(3), pages 315-321, September.
    4. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
    5. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
    6. Benoit, Jean-Pierre & Krishna, Vijay, 1987. "Dynamic Duopoly: Prices and Quantities," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 23-35, January.
    7. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
    8. Carl Davidson & Raymond Deneckere, 1984. "Excess Capacity and Collusion," Discussion Papers 675, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Mandy, David M, 1992. "Nonuniform Bertrand Competition," Econometrica, Econometric Society, vol. 60(6), pages 1293-30, November.
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