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Calling Circles: Network Competition with Non-Uniform Calling Patterns

  • Hoernig, Steffen
  • Inderst, Roman
  • Valletti, Tommaso

We introduce a flexible model of telecommunications network competition with non-uniform calling patterns, which account for the fact that customers tend to make most calls to a small subset of people. Equilibrium call prices are distorted away from marginal cost, and competitive intensity is affected by the concentration of calling patterns. Contrary to previous predictions, jointly profit-maximizing access charges are set above termination cost in order to dampen competition, and the resulting on-net prices are below off-net prices, if calling patterns are sufficiently concentrated.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8114.

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Date of creation: Nov 2010
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Handle: RePEc:cpr:ceprdp:8114
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  1. Joan Calzada & Tommaso M. Valletti, 2008. "Network Competition and Entry Deterrence," Economic Journal, Royal Economic Society, vol. 118(531), pages 1223-1244, 08.
  2. 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.
  3. Armstrong, Mark, 2004. "Network interconnection with asymmetric networks and heterogeneous calling patterns," Information Economics and Policy, Elsevier, vol. 16(3), pages 375-390, September.
  4. Valletti, Tommaso M & Cave, Martin, 1998. "Competition in UK mobile communications," Telecommunications Policy, Elsevier, vol. 22(2), pages 109-131, March.
  5. Christos Genakos & Tommaso Valletti, 2007. "Testing the "waterbed" effect in mobile telephony," LSE Research Online Documents on Economics 19680, London School of Economics and Political Science, LSE Library.
  6. Hurkens, Sjaak & Jeon, Doh-Shin, 2009. "Mobile Termination and Mobile Penetration," TSE Working Papers 09-070, Toulouse School of Economics (TSE).
  7. Fjeldstad, Øystein & Moen, Espen R & Riis, Christian, 2010. "Competition with Local Network Externalities," CEPR Discussion Papers 7778, C.E.P.R. Discussion Papers.
  8. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  9. Mengze Shi & Botao Yang & Jeongwen Chiang, 2009. "A Dyad Model of Calling Behaviour with Tie Strength Dynamics," Working Papers 09-12, NET Institute, revised Sep 2009.
  10. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  11. Armstrong, Mark & Wright, Julian, 2007. "Mobile call termination in the UK," MPRA Paper 2344, University Library of Munich, Germany.
  12. Gans, J.S. & King, S.P., 2000. "Using 'Bill and Keep' Interconnect Arrangements to Soften Network Competiti on," Department of Economics - Working Papers Series 739, The University of Melbourne.
  13. Daniel Birke & G. Swann, 2006. "Network effects and the choice of mobile phone operator," Journal of Evolutionary Economics, Springer, vol. 16(1), pages 65-84, April.
  14. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
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