An Economic Analysis of the Receiver Pays Principle
This paper is to examine the effect of the receiver pays principle (RPP) on the calling price, social welfare and interconnection charge. A significant trouble with introducing this system in telecommunications pricing is the possibility that the receiving party may refuse to receive a call if the charge he has to bear is very high. We find the condition for no calls to be refused and show that the profit maximizing prices charged to the calling party and the receiving party must satisfy this condition. We demonstrate that the calling price under RPP must be lower than the price under the caller pays principle (CPP), that the profit of a firm will be increased under RPP, but that the consumer surplus will not necessarily be increased under RPP despite the lowered calling price. Also, we show that, if the demand function is linear, the reciprocal interconnection charge under RPP is higher than under CPP.
|Date of creation:||01 Aug 2000|
|Date of revision:|
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- Gans, Joshua S. & King, Stephen P., 2000.
"Mobile network competition, customer ignorance and fixed-to-mobile call prices,"
Information Economics and Policy,
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- Gans, J.S. & King, S.P., 2000. "Mobile Network Competition, Customer Ignorance and Fixed-to-Mobile Call Prices," Department of Economics - Working Papers Series 734, The University of Melbourne.
- Doyle, Chris & Smith, Jennifer C., 1998. "Market structure in mobile telecoms: qualified indirect access and the receiver pays principle," Information Economics and Policy, Elsevier, vol. 10(4), pages 471-488, December.
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- Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
- Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
- 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.
- Nicholas Economides & Giuseppe Lopomo & Glenn Woroch, 2005.
"Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing,"
05-10, New York University, Leonard N. Stern School of Business, Department of Economics.
- Nicholas Economides & Giuseppe Lopomo & Glenn Woroch, 1997. "Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing," Industrial Organization 9701001, EconWPA.
- repec:eee:ecolet:v:71:y:2001:i:3:p:413-42 is not listed on IDEAS
- Acton, Jan Paul & Vogelsang, Ingo, 1992. "Telephone Demand over the Atlantic: Evidence from Country-Pair Data," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 305-23, September.
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