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Pricing Network Interconnection: Advantages Held by Integrated Telecom Carriers

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  • Clement Krouse
  • Elke Krouse

Abstract

A recurring telecommunications policy debate centers on whether incumbent, vertically integrated local exchange carriers have an incentive to discriminate in price against down-stage service rivals who interconnect to their network (a price squeeze). The concern is typically voiced in one of two claims: (1) there is an incentive for an incumbent to use a price squeeze when access prices are set above long-run incremental cost; or (2) prices set at that cost are preferred for interconnection because they eliminate incentives for a price squeeze. In principle, form (1) is generally true (Proposition 1), but form (2) is generally not (Proposition 2), The proof of these Propositions reveals why pricing access at long-run incremental cost coupled with appropriate price floors in the down-stage market does eliminate the incentive to squeeze. Copyright Springer 2005

Suggested Citation

  • Clement Krouse & Elke Krouse, 2005. "Pricing Network Interconnection: Advantages Held by Integrated Telecom Carriers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 27(1), pages 35-46, August.
    • Handle: RePEc:kap:revind:v:27:y:2005:i:1:p:35-46
    DOI: 10.1007/s11151-005-5711-1
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