Nicholas Economides (Stern School of Business, New York University) Giuseppe Lopomo (Stern School of Business, New York University) Glenn Woroch (University of California, Berkeley)
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This paper evaluates the effectiveness of several pricing rules intended to promote entry into a network industry dominated by an incumbent carrier. Drawing on the work of Cournot and Hotelling, we develop a model of competition between two interconnected networks. In a symmetric equilibrium, the price of cross-network calls exceeds the price of internal calls. This "calling circle discount" tends to "tip" the industry to a monopoly equilibrium as would a network externality. By equalizing charges for terminating calls, reciprocity eliminates differences between internal and cross-network prices and makes monopoly less likely. Imputation counteracts an incentive by the dominant network to "price squeeze" a rival by eliminating differences in the wholesale price of termination and the implicit price for internal use. By increasing profits of rival networks and increasing their subscribers' surplus, imputation supports additional entry. Finally, an unbundling rule reduces termination fees charged by a dominant network that was engaging in pure bundling. Again, entry will be facilitated as rival networks offer potential subscribers a more attractive rate schedule.
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Length: 18 pages Date of creation: 14 Jan 1997 Date of revision: Handle: RePEc:wpa:wuwpio:9612003
Note: Type of Document - PDF/PostScript; prepared on IBM PC ; to print on HP; pages: 18; figures: separate but included after page 18 in the pdf and PostScript file. Forthcoming in Industrial and Corporate Change Contact details of provider: Web page: http://129.3.20.41
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Find related papers by JEL classification: L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance D4 - Microeconomics - - Market Structure and Pricing
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Gal-Or, Esther, 1985.
"First Mover and Second Mover Advantages,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-53, October.
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Nicholas Economides, 1998.
"U.S. Telecommunications Today,"
Working Papers
98-04, New York University, Leonard N. Stern School of Business, Department of Economics.
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