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Foreclosing Competition through Access Charges and Price Discrimination

  • Ángel L. López

    (IESE Business School)

  • Patrick Rey

    (Toulouse School of Economics (IDEI and GREMAQ))

This article analyzes competition between two asymmetric networks, an incumbent and a new entrant. Networks compete in non-linear tariffs and may charge different prices for on-net and off-net calls. Departing from cost-based access pricing allows the incumbent to foreclose the market in a profitable way. If the incumbent benefits from customer inertia, then it has an incentive to insist in the highest possible access markup even if access charges are reciprocal and even in the absence of actual switching costs. If instead the entrant benefits from customer activism, then foreclosure is profitable only when switching costs are large enough.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.99.

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Date of creation: Nov 2009
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Handle: RePEc:fem:femwpa:2009.99
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  1. 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.
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  6. Hoernig, Steffen, 2006. "On-Net and Off-Net Pricing on Asymmetric Telecommunications Networks," CEPR Discussion Papers 5588, C.E.P.R. Discussion Papers.
  7. repec:dgr:kubtil:2004010 is not listed on IDEAS
  8. 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.
  9. Armstrong, Mark & Wright, Julian, 2007. "Mobile call termination in the UK," MPRA Paper 2344, University Library of Munich, Germany.
  10. repec:cup:cbooks:9780521066631 is not listed on IDEAS
  11. 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.
  12. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  13. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
  14. Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 184-216, April.
  15. 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.
  16. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages F270-F307, 06.
  17. Cambini, Carlo & Valletti, Tommaso, 2005. "Information Exchange and Competition in Communications Networks," CEPR Discussion Papers 5031, C.E.P.R. Discussion Papers.
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