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Tariff-Mediated Network Externalities: Is Regulatory Intervention Any Good?

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  • Hoernig, Steffen

Abstract

Mobile phone networks' practice of charging higher prices for off-net than for on-net calls has been pinpointed as the source of two competition problems: underprovision of calls and permanent disadvantages for small networks. We consider these allegations and four different remedies: limiting on/off-net differentials or off-net margins, lower termination fees, and asymmetric termination fees. In all cases a trade-off has to be made between efficiency and networks' profits on the one hand, and consumer surplus on the other. Indeed, the total welfare effects of regulating on/off-net differentials are ambiguous and depend on demand characteristics.

Suggested Citation

  • Hoernig, Steffen, 2008. "Tariff-Mediated Network Externalities: Is Regulatory Intervention Any Good?," CEPR Discussion Papers 6866, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6866
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    References listed on IDEAS

    as
    1. Hoernig, Steffen, 2007. "On-net and off-net pricing on asymmetric telecommunications networks," Information Economics and Policy, Elsevier, vol. 19(2), pages 171-188, June.
    2. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, vol. 86(1), pages 107-112, January.
    3. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages 270-307, June.
    4. Kim, Jeong-Yoo & Lim, Yoonsung, 2001. "An economic analysis of the receiver pays principle," Information Economics and Policy, Elsevier, vol. 13(2), pages 231-260, June.
    5. Martin Peitz, 2005. "Asymmetric Regulation of Access and Price Discrimination in Telecommunications," Journal of Regulatory Economics, Springer, vol. 28(3), pages 327-343, November.
    6. Armstrong, Mark & Wright, Julian, 2007. "Mobile call termination in the UK," MPRA Paper 2344, University Library of Munich, Germany.
    7. Gabrielsen, Tommy Staahl & Vagstad, Steinar, 2008. "Why is on-net traffic cheaper than off-net traffic Access markup as a collusive device," European Economic Review, Elsevier, vol. 52(1), pages 99-115, January.
    8. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 27-46, February.
    9. Doh-Shin Jeon & Jean-Jacques Laffont & Jean Tirole, 2004. "On the Receiver-Pays Principle," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 85-110, Spring.
    10. Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(1), pages 1-25, February.
    11. 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.
    12. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, vol. 71(3), pages 413-420, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Hinnerk Gnutzmann, 2014. "Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare," DISCE - Working Papers del Dipartimento di Economia e Finanza def019, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Harbord, David & Hoernig, Steffen, 2010. "Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger)," MPRA Paper 21515, University Library of Munich, Germany.
    3. repec:ctc:serie1:def19 is not listed on IDEAS
    4. repec:lmu:msmdpa:12688 is not listed on IDEAS
    5. Basaran, Alparslan A. & Cetinkaya, Murat & Bagdadioglu, Necmiddin, 2014. "Operator choice in the mobile telecommunications market: Evidence from Turkish urban population," Telecommunications Policy, Elsevier, vol. 38(1), pages 1-13.
    6. Muck, Johannes, 2016. "Tariff-mediated network effects with incompletely informed consumers," DICE Discussion Papers 210, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. Zucchini, Leon & Claussen, Jörg & Trüg, Moritz, 2013. "Tariff-mediated network effects versus strategic discounting: Evidence from German mobile telecommunications," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 751-759.

    More about this item

    Keywords

    Network competition; on/off-net differentials; retail price controls; termination fees;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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