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Why is on-net traffic cheaper than off-net traffic? Access markup as a collusive device and a barrier to entry

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Abstract

Received literature have shown that if competing networks are restricted to linear and uniform pricing, high access charges can facilitate collusion; a result that breaks down if we allow for non-linear and discriminatory pricing, however. In this paper we add unbalanced calling pattern to the model and show that this may restore the use of high access charges. High access charges may make the firms collude on high prices. Moreover, when allowing for entry, we show that incumbents can profitably charge high access prices as a device to deter or soften entrants.

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  • Gabrielsen, Tommy Staahl & Vagstad, Steinar, 2004. "Why is on-net traffic cheaper than off-net traffic? Access markup as a collusive device and a barrier to entry," Working Papers in Economics 03/04, University of Bergen, Department of Economics.
    • Handle: RePEc:hhs:bergec:2004_003
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    1. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 515-539.
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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. repec:dau:papers:123456789/79 is not listed on IDEAS

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    More about this item

    Keywords

    Two-way access; non-linear pricing; competition; entry.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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