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Nonlinear pricing of telecommunications with call and network externalities

  • Hahn, Jong-Hee

This paper investigates how call and network externalities affect a monopolist’s optimal nonlinear pricing of a two-way telecommunication service. The existence of call externalities results in all types of subscribers (even the highest type) making suboptimal quantities of calls in the optimum. This is because the firm being not allowed to charge incoming calls cannot control the quantities of incoming calls. Due to call externalities, there may exist some subscribers who only receive calls without making any outgoing calls in equilibrium. Also, the firm may have incentives to subsidise some low-type consumers in order to take advantage of network effects.

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File URL: http://www.sciencedirect.com/science/article/B6V8P-4840YCV-1/2/f86be5618b3cdff76bb6857113fc13df
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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 21 (2003)
Issue (Month): 7 (September)
Pages: 949-967

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Handle: RePEc:eee:indorg:v:21:y:2003:i:7:p:949-967
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Stephen C. Littlechild, 1975. "Two-Park Tariffs and Consumption Externalities," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 661-670, Autumn.
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  8. Dybvig, Philip H. & Spatt, Chester S., 1983. "Adoption externalities as public goods," Journal of Public Economics, Elsevier, vol. 20(2), pages 231-247, March.
  9. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  10. Shmuel S. Oren & Stephen A. Smith, 1981. "Critical Mass and Tariff Structure in Electronic Communications Markets," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 467-487, Autumn.
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  12. Lyn Squire, 1973. "Some Aspects of Optimal Pricing for Telecommunications," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 515-525, Autumn.
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