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An Economic Analysis of the Receiver Pays Principle

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  • Jeong-Yoo Kim

    (Dongguk University)

  • Yoonsung Lim

    (Dongduk Women's University)

Abstract

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.

Suggested Citation

  • Jeong-Yoo Kim & Yoonsung Lim, 2000. "An Economic Analysis of the Receiver Pays Principle," Econometric Society World Congress 2000 Contributed Papers 0334, Econometric Society.
  • Handle: RePEc:ecm:wc2000:0334
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    References listed on IDEAS

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    1. Nicholas Economides & Giuseppe Lopomo & Glenn Woroch, 1997. "Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing," Industrial Organization 9701001, University Library of Munich, Germany.
    2. repec:eee:ecolet:v:71:y:2001:i:3:p:413-42 is not listed on IDEAS
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    Citations

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    Cited by:

    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. Clavijo, R, 2022. "Price discrimination under nonuniform calling circles and call externalities," Documentos de Trabajo 20054, Universidad del Rosario.
    4. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
    5. Hurkens, Sjaak & López, Ángel L., 2014. "Who Should Pay for Two-way Interconnection?," IESE Research Papers D/1102, IESE Business School.
    6. Hoernig, Steffen, 2008. "Tariff-Mediated Network Externalities: Is Regulatory Intervention Any Good?," CEPR Discussion Papers 6866, C.E.P.R. Discussion Papers.
    7. Sjaak Hurkens & Ángel Luis López, 2010. "Mobile Termination and Consumer Expectations under the Receiver-Pays Regime," Working Papers 10-12, NET Institute.
    8. Wellmann, Nicolas, 2017. "OTT-Messaging and Mobile Telecommunication: A Joint Market? An Empirical Approach," 28th European Regional ITS Conference, Passau 2017 169503, International Telecommunications Society (ITS).
    9. Luis López, Ángel, 2011. "Mobile termination rates and the receiver-pays regime," Information Economics and Policy, Elsevier, vol. 23(2), pages 171-181, June.
    10. Basalisco, Bruno, 2012. "The effect of user interaction on the demand for mobile text messages: Evidence from cross-country data," Information Economics and Policy, Elsevier, vol. 24(2), pages 132-144.
    11. MacDonald, Ian A. & Meriluoto, Laura, 2005. "Efficient usage and access pricing in telephone networks," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 615-623, September.
    12. Carlo Cambini & Tommaso M. Valletti, 2008. "Information Exchange And Competition In Communications Networks," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 707-728, December.
    13. 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.
    14. Ulrich Berger, 2004. "Bill-and-Keep vs. Cost-Based Access Pricing Revisited," Industrial Organization 0408002, University Library of Munich, Germany.
    15. Hoernig, Steffen, 2016. "Going beyond duopoly: Connectivity breakdowns under receiving party pays," Information Economics and Policy, Elsevier, vol. 36(C), pages 1-9.
    16. Wellmann, Nicolas, 2017. "OTT-messaging and mobile telecommunication: A joint market? - An empirical approach," DICE Discussion Papers 256, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    17. Cátia Felisberto & Matthias Finger & Beat Friedli & Daniel Krähenbühl & Urs Trinkner, 2006. "Pricing the Last Mile in the Postal Sector," Topics in Regulatory Economics and Policy, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Progress toward Liberalization of the Postal and Delivery Sector, chapter 0, pages 249-264, Springer.
    18. Edmond Baranes & Laurent Flochel, 2008. "Competition in telecommunication networks with call externalities," Journal of Regulatory Economics, Springer, vol. 34(1), pages 53-74, August.
    19. Wellmann, Nicolas, 2019. "Are OTT messaging and mobile telecommunication an interrelated market? An empirical analysis," Telecommunications Policy, Elsevier, vol. 43(9).
    20. Uriel Spiegel & Tchai Tavor, 2011. "Optimal Pricing for Voicemail Services," The American Economist, Sage Publications, vol. 56(1), pages 7-12, May.
    21. Ulrich Berger, 2003. "Two-way interconnection and the collusive role of the access charge," Industrial Organization 0303011, University Library of Munich, Germany.
    22. Ulrich Berger, 2004. "Access Charges in the Presence of Call Externalities," Industrial Organization 0408009, University Library of Munich, Germany, revised 31 Aug 2004.
    23. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.

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