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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. 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).
  2. Tommaso M. Valletti & Carlo Cambini, 2005. "Investments and Network Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 446-468, Summer.
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  7. Lopez, Angel & Rey, Patrick, 2009. "Foreclosing Competition through Access Charges and Price Discrimination," TSE Working Papers 09-056, Toulouse School of Economics (TSE), revised Feb 2012.
  8. Jullien, Bruno & Rey, Patrick & Sand-Zantman, Wilfried, 2009. "Termination fees revisited," IDEI Working Papers 551, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2012.
  9. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer, Springer, vol. 22(1), pages 27-46, February.
  10. Laffont, Jean-Jacques & Marcus, Scott & Rey, Patrick & Tirole, Jean, 2001. "Internet Interconnection and the Off-Net-Cost Pricing Principle," IDEI Working Papers 130, Institut d'Économie Industrielle (IDEI), Toulouse.
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  14. Doh-Shin Jeon & Sjaak Hurkens, 2007. "A retail benchmarking approach to efficient two-way access pricing," Economics Working Papers 1055, Department of Economics and Business, Universitat Pompeu Fabra.
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  16. de Bijl, Paul W. J. & Peitz, Martin, 2004. "Dynamic regulation and entry in telecommunications markets: a policy framework," Information Economics and Policy, Elsevier, vol. 16(3), pages 411-437, September.
  17. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  18. de Bijl,Paul & Peitz,Martin, 2003. "Regulation and Entry into Telecommunications Markets," Cambridge Books, Cambridge University Press, number 9780521808378, 9.
  19. Anderson, Simon P & De Palma, Andre, 1992. "The Logit as a Model of Product Differentiation," Oxford Economic Papers, Oxford University Press, vol. 44(1), pages 51-67, January.
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Citations

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Cited by:
  1. Hurkens, Sjaak & Lopez, Angel, 2010. "Mobile termination, network externalities, and consumer expectations," IESE Research Papers D/850, IESE Business School.
  2. 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.
  3. Sjaak Hurkens & Ángel Luis López, 2010. "Mobile Termination and Consumer Expectations under the Receiver-Pays Regime," Working Papers 10-12, NET Institute.
  4. Sjaak Hurkens & Ángel Luis López, 2011. "The Welfare Effects of Mobile Termination Rate Regulation in Asymmetric Oligopolies: the Case of Spain," Working Papers 11-09, NET Institute.

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