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Mobile termination and mobile penetration

  • Hurkens, Sjaak

    ()

    (Institute for Economic Analysis)

  • Jeon, Doh-Shin

    (Toulouse School of Economics)

In this paper, we study how access pricing affects network competition when subscription demand is elastic and each network uses non-linear prices and can apply termination-based price discrimination. In the case of a fixed per minute termination charge, we find that a reduction of the termination charge below cost has two oppos- ing effects: it softens competition but helps to internalize network externalities. The former reduces mobile penetration while the latter boosts it. We find that firms al- ways prefer termination charge below cost for either motive while the regulator prefers termination below cost only when this boosts penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008)that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase penetration without distorting call volumes.

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Paper provided by IESE Business School in its series IESE Research Papers with number D/816.

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Length: 39 pages
Date of creation: 01 Sep 2009
Date of revision:
Handle: RePEc:ebg:iesewp:d-0816
Contact details of provider: Postal:
IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN

Web page: http://www.iese.edu/

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  1. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages F270-F307, 06.
  2. Peitz, Martin & Valletti, Tommaso M. & Wright, Julian, 2004. "Competition in telecommunications: an introduction," Information Economics and Policy, Elsevier, vol. 16(3), pages 315-321, September.
  3. Calzada, Joan & Valletti, Tommaso, 2005. "Network Competition and Entry Deterrence," CEPR Discussion Papers 5381, C.E.P.R. Discussion Papers.
  4. de Bijl,Paul & Peitz,Martin, 2003. "Regulation and Entry into Telecommunications Markets," Cambridge Books, Cambridge University Press, number 9780521808378, june. pag.
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  6. Cambini, Carlo & Valletti, Tommaso, 2005. "Information Exchange and Competition in Communications Networks," CEPR Discussion Papers 5031, C.E.P.R. Discussion Papers.
  7. Doh-Shin Jeon & Sjaak Hurkens, 2007. "A Retail Benchmarking Approach to Eficient Two-Way Access Pricing," UFAE and IAE Working Papers 717.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  8. de Bijl, P.W.J. & Peitz, M., 2004. "Dynamic Regulation and Entry in Telecommunications Markets : A Policy Framework," Discussion Paper 2004-010, Tilburg University, Tilburg Law and Economic Center.
  9. Wright, Julian, 2002. "Access Pricing under Competition: An Application to Cellular Networks," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 289-315, September.
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  11. Lopez, Angel L. & Rey, Patrick, 2009. "Foreclosing competition through access charges and price discrimination," IESE Research Papers D/801, IESE Business School.
  12. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer, vol. 22(1), pages 27-46, February.
  13. Jean-Jacques Laffont, 2001. "Internet Interconnection and the Off-Net-Cost Pricing Principle," Theory workshop papers 357966000000000085, UCLA Department of Economics.
  14. 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.
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  16. Jullien, Bruno & Rey, Patrick & Sand-Zantman, Wilfried, 2009. "Mobile Call Termination Revisited," TSE Working Papers 10-198, Toulouse School of Economics (TSE), revised Aug 2010.
  17. Benjamin E. Hermalin & Michael L. Katz, 2004. "Sender or Receiver: Who Should Pay to Exchange an Electronic Message?," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 423-447, Autumn.
  18. Gans, Joshua S. & King, Stephen P., 2000. "Mobile network competition, customer ignorance and fixed-to-mobile call prices," Information Economics and Policy, Elsevier, vol. 12(4), pages 301-327, December.
  19. Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-30, January.
  20. Cambini, Carlo & Valletti, Tommaso, 2003. "Investments and Network Competition," CEPR Discussion Papers 3829, C.E.P.R. Discussion Papers.
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  22. Carlo Cambini & Tommaso M. Valletti, 2008. "INFORMATION EXCHANGE AND COMPETITION IN COMMUNICATIONS NETWORKS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 707-728, December.
  23. Jong-Hee Hahn, 2000. "Network Competition and Interconnection with Heterogeneous Subscribers," Keele Department of Economics Discussion Papers (1995-2001) 2000/11, Department of Economics, Keele University.
  24. Valletti, Tommaso M & Cave, Martin, 1998. "Competition in UK mobile communications," Telecommunications Policy, Elsevier, vol. 22(2), pages 109-131, March.
  25. Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer, vol. 14(1), pages 1-25, February.
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