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Network Competition: II. Price Discrimination


  • Jean-Jacques Laffont
  • Patrick Rey
  • Jean Tirole


Our companion article developed a clear conceptual framework of negotiated or regulated interconnection agreements between rival operators and studied competition between interconnected networks, under the assumption of nondiscriminatory pricing. This article relaxes this assumption and allows networks to charge different prices for calls terminating on the subscriber's network and those terminating on a rivals network. This creates a price differential between services that are identical for the consumer and generates network externalities despite network interconnection. We show that in both the mature and entry phases of the industry, the nature of competition is substantially affected by such price discrimination.

Suggested Citation

  • Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
  • Handle: RePEc:rje:randje:v:29:y:1998:i:spring:p:38-56

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    References listed on IDEAS

    1. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 107-120.
    2. Asher Wolinsky, 1984. "Product Differentiation with Imperfect Information," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 53-61.
    3. Anderson, Simon P & de Palma, Andre & Nesterov, Yurii, 1995. "Oligopolistic Competition and the Optimal Provision of Products," Econometrica, Econometric Society, vol. 63(6), pages 1281-1301, November.
    4. Raymond Deneckere & Michael Rothschild, 1992. "Monopolistic Competition and Preference Diversity," Review of Economic Studies, Oxford University Press, vol. 59(2), pages 361-373.
    5. Anderson, Simon P & Renault, Regis, 2000. "Consumer Information and Firm Pricing: Negative Externalities from Improved Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 721-742, August.
    6. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    7. Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October.
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