Network Competition: Workhorse Resurrection
AbstractI generalize the workhorse model of network competition (Armstrong, 1998; Laffont, Rey and Tirole, 1998a,b) to include income effects in call demand. Income effects imply that call demand depends also on the subscription fee, not only on the call price. In the standard case of differentiated networks, weak income effects are enough to deliver results in line with stylized facts: The networks have an incentive to agree on high mobile termination rates to soften competition. They charge a higher price for calls outside (off-net) than inside (on-net) the network. This vindicates the use of (a perturbation of) the workhorse model of network competition.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 10-05.
Length: 20 pages
Date of creation: Sep 2010
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bill-and-keep; call price discrimination; network competition; non-linear prices; profit neutrality.;
Find related papers by JEL classification:
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-16 (All new papers)
- NEP-COM-2010-10-16 (Industrial Competition)
- NEP-NET-2010-10-16 (Network Economics)
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