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A Retail Benchmarking Approach to Efficient Two-way Access Pricing: Two-Part Tariffs

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Author Info
Doh-Shin Jeon () (Department of Economics and Business, Universitat Pompeu Fabra)
Sjaak Hurkens () (Institute for Economic Analysis)

Additional information is available for the following registered author(s):

Abstract

We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under competition in linear prices, derived by Jeon (2005), but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under the class of rules. Therefore, the regulator can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: in particular, we show that the regulator can achieve static and dynamic efficiency at the same time.

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Publisher Info
Paper provided by NET Institute in its series Working Papers with number 07-11.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 27 pages
Date of creation: Sep 2007
Date of revision: Sep 2007
Handle: RePEc:net:wpaper:0711

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Web page: http://www.NETinst.org/

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Related research
Keywords: Networks; Access Pricing; Interconnection; Competition Policy; Telecommunications; Investment; Two-part Tariff;

Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing
K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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References listed on IDEAS
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  1. Doganoglu, Toker & Tauman, Yair, 2002. "Network Competition and Access Charge Rules," Manchester School, University of Manchester, vol. 70(1), pages 16-35, January. [Downloadable!] (restricted)
  2. Jong-Hee Hahn, 2000. "Network Competition and Interconnection with Heterogeneous Subscribers," Keele Department of Economics Discussion Papers (1995-2001) 2000/11, Department of Economics, Keele University. [Downloadable!]
    Other versions:
  3. Doh-Shin Jeon, 2005. "A Simple Access Pricing Rule to Achieve the Ramsey Outcome for Interconnected Networks," Economics Working Papers 808, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2005. [Downloadable!]
  4. Dessein, Wouter, 2004. "Network competition with heterogeneous customers and calling patterns," Information Economics and Policy, Elsevier, vol. 16(3), pages 323-345, September. [Downloadable!] (restricted)
  5. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509.
  6. Gans, Joshua S. & King, Stephen P., 2000. "Mobile network competition, customer ignorance and fixed-to-mobile call prices," Information Economics and Policy, Elsevier, vol. 12(4), pages 301-327, December. [Downloadable!] (restricted)
    Other versions:
  7. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Armstrong, M., 1996. "Network Interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  10. Doh Shin Jeon & Jean Jacques Laffont & Jean Tirole, 2001. "On the Receiver Pays Principle," Economics Working Papers 561, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  11. Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer, vol. 14(1), pages 1-25, February. [Downloadable!] (restricted)
  12. Wright, Julian, 2002. "Access Pricing under Competition: An Application to Cellular Networks," Journal of Industrial Economics, Blackwell Publishing, vol. 50(3), pages 289-315, September. [Downloadable!] (restricted)
  13. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  14. Cambini, Carlo & Valletti, Tommaso, 2003. "Investments and Network Competition," CEPR Discussion Papers 3829, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  15. 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. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
    Other versions:
  17. Nicholas Economides & Lawrence J. White, 1997. "Access and Interconnection Pricing: How Efficient is the Efficient Component Pricing Rule?," Industrial Organization 9701003, EconWPA. [Downloadable!]
    Other versions:
  18. Dessein, Wouter, 2003. " Network Competition in Nonlinear Pricing," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 593-611, Winter.
  19. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany. [Downloadable!]
  20. Benjamin E. Hermalin & Michael L. Katz, 2004. "Sender or Receiver: Who Should Pay to Exchange an Electronic Message?," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 423-447, Autumn.
  21. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer, vol. 22(1), pages 27-46, February. [Downloadable!] (restricted)
  22. Rochet, Jean-Charles & Stole, Lars A, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Blackwell Publishing, vol. 69(1), pages 277-311, January.
  23. Laffont, Jean-Jacques, et al, 2003. " Internet Interconnection and the Off-Net-Cost Pricing Principle," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 370-90, Summer.
    Other versions:
  24. Sue Mialon, 2007. "Pricing access in network competition," Journal of Regulatory Economics, Springer, vol. 31(1), pages 109-123, February. [Downloadable!] (restricted)
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