Telecommunication Network Competition: An Equilibrium Analysis

The paper analyzes calling party pays access pricing policies in a General Equilibrium two ways access charge model with consumers that choose between different telecommunication providers, and benefit from making calls to other consumers and from the calls that they receive. We obtain that agents' network decision may leads to an inefficient industry structure where from a social point of view the network competitively chosen by the agents is an inferior one. Under ad-hoc parameter values we obtain that if each telecommunication company faces a fixed cost, becomes of higher efficient to finance this cost through a fixed charge on the telephone line, an access charge, and setting telecommunication companies interconnection charges equal to each company interconnection marginal cost, where policies that finance fixed or common costs by increasing interconnection charges lead to less efficient allocations. And also we obtain that if the companies have different interconnection marginal cost, interconnection charge differences should be transferred to the final consumer prices, and interconnection charges should be adjusted to the companies' interconnection marginal costs