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Mobile termination and mobile penetration

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  • Sjaak Hurkens
  • Doh-Shin Jeon

Abstract

In this paper, we study how access pricing affects network competition when subscription demand is elastic and each network uses non-linear prices and can apply termination-based price discrimination. In the case of a fixed per minute termination charge, we find that a reduction of the termination charge below cost has two opposing effects: it softens competition but helps to internalize network externalities. The former reduces mobile penetration while the latter boosts it. We find that firms always prefer termination charge below cost for either motive while the regulator prefers termination below cost only when this boosts penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008) that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase penetration without distorting call volumes.

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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 1166.

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Date of creation: Jul 2009
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Handle: RePEc:upf:upfgen:1166

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

Related research

Keywords: Mobile Penetration; Termination Charge; Access Pricing; Networks; Interconnection; Regulation; Telecommunications;

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References

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  1. Doh-Shin Jeon & Sjaak Hurkens, 2007. "A Retail Benchmarking Approach to Eficient Two-Way Access Pricing," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 717.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Lopez, Angel & Rey, Patrick, 2009. "Foreclosing Competition through Access Charges and Price Discrimination," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 570, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2012.
  3. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, Elsevier, vol. 71(3), pages 413-420, June.
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  18. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 119(538), pages F270-F307, 06.
  19. Wouter Dessein, 2000. "Network Competition in Nonlinear Pricing," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 00-22, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  20. Jullien, Bruno & Rey, Patrick & Sand-Zantman, Wilfried, 2009. "Termination fees revisited," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 551, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2012.
  21. de Bijl, Paul W. J. & Peitz, Martin, 2004. "Dynamic regulation and entry in telecommunications markets: a policy framework," Information Economics and Policy, Elsevier, Elsevier, vol. 16(3), pages 411-437, September.
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Citations

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Cited by:
  1. Sjaak Hurkens & Ángel L. López, 2010. "Mobile Termination, Network Externalities, and Consumer Expectations," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 812.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Sjaak Hurkens & Ángel Luis López, 2011. "The Welfare Effects of Mobile Termination Rate Regulation in Asymmetric Oligopolies: the Case of Spain," Working Papers, NET Institute 11-09, NET Institute.
  3. Sjaak Hurkens & Ángel Luis López, 2010. "Mobile Termination and Consumer Expectations under the Receiver-Pays Regime," Working Papers, NET Institute 10-12, NET Institute.
  4. Hurkens, Sjaak & Jeon, Doh-Shin, 2012. "Promoting network competition by regulating termination charges," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 30(6), pages 541-552.

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