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A retail benchmarking approach to efficient two-way access pricing

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  • Doh-Shin Jeon
  • Sjaak Hurkens

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 linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: for instance, we show that both static and dynamic e±ciency can be achieved at the same time.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1055.

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Date of creation: Oct 2007
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Handle: RePEc:upf:upfgen:1055

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Networks; Access Pricing; Interconnection; Competition Policy; Telecommunications; Investment;

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Cited by:
  1. Stennek, Johan & Tangerås, Thomas P., 2007. "Competition vs. Regulation in Mobile Telecommunications," CEPR Discussion Papers 6073, C.E.P.R. Discussion Papers.
  2. Hurkens, Sjaak & Jeon, Doh-Shin, 2012. "Promoting network competition by regulating termination charges," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 541-552.
  3. Sjaak Hurkens & Doh-Shin Jeon, 2008. "A Retail Benchmarking Approach to Efficient Two-Way Access Pricing: Termination-Based Price Discrimination with Elastic Subscription Demand," Working Papers 08-41, NET Institute, revised Nov 2008.
  4. Hoernig, Steffen, 2010. "Competition Between Multiple Asymmetric Networks: Theory and Applications," CEPR Discussion Papers 8060, C.E.P.R. Discussion Papers.
  5. Klumpp, Tilman & Su, Xuejuan, 2013. "Strategic Investments under Open Access: Theory and Evidence," Working Papers 2013-2, University of Alberta, Department of Economics.
  6. Hurkens, Sjaak & Jeon, Doh-Shin, 2009. "Mobile termination and mobile penetration," IESE Research Papers D/816, IESE Business School.
  7. Jullien, Bruno & Rey, Patrick & Sand-Zantman, Wilfried, 2013. "Termination fees revisited," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 738-750.
  8. Stühmeier, Torben, 2012. "Roaming and Investments in the Mobile Internet Market," DICE Discussion Papers 46, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  9. Tilman Klumpp & Xuejuan Su, 2010. "Open Access and Dynamic Efficiency," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 64-96, May.
  10. Sjaak Hurkens & Doh-Shin Jeon, 2009. "Mobile Termination and Mobile Penetration," Working Papers 393, Barcelona Graduate School of Economics.
  11. Andersson, Kjetil & Foros, Øystein & Hansen, Bjørn, 2012. "Empirical evidence on the relationship between mobile termination rates and firms’ profit," Discussion Papers 2012/10, Department of Business and Management Science, Norwegian School of Economics.
  12. Johan Stennek & Thomas TangerŒs, 2008. "Intense Network Competition," Working Papers 08-36, NET Institute, revised Sep 2008.

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