On the receiver pays principle
AbstractThis paper extends the theory of network competition between telecommunications operators by allowing receivers to derive a surplus from receiving calls (call externality) and to affect the volume of communications by hanging up (receiver sovereignty). We investigate the extent to which receiver charges can lead to an internalization of the calling externality. When the receiver charge and the termination (access) charge are both regulated, there exists an e±cient equilibrium. Effciency requires a termination discount. When reception charges are market determined, it is optimal for each operator to set the prices for emission and reception at their off-net costs. For an appropriately chosen termination charge, the symmetric equilibrium is again effcient. Lastly, we show that network-based price discrimination creates strong incentives for connectivity breakdowns, even between equal networks.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 561.
Date of creation: Mar 2001
Date of revision:
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Web page: http://www.econ.upf.edu/
Networks; interconnection; competition policy;
Other versions of this item:
- 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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- Cremer, Jacques & Rey, Patrick & Tirole, Jean, 2000.
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- Jeong-Yoo Kim & Yoonsung Lim, 2000.
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- Doyle, Chris & Smith, Jennifer C., 1998. "Market structure in mobile telecoms: qualified indirect access and the receiver pays principle," Information Economics and Policy, Elsevier, vol. 10(4), pages 471-488, December.
- Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer, vol. 14(1), pages 1-25, February.
- Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
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