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Nonlinear Pricing of Telecommunications with Call and Network Externalities

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  • Jong-Hee Hahn

    () (Department of Economics University of Keele)

Abstract

This paper investigates how call and network externalities affect a monopolist’s optimal nonlinear pricing of a two-way telecommunication service. The existence of call externalities results in all types of subscribers (even the highest type) making suboptimal quantities of calls in the optimum. This is because the firm being not allowed to charge incoming calls cannot control the quantities of incoming calls. Due to call externalities, there may exist some subscribers who only receive calls without making any outgoing calls in equilibrium. Also, the firm may have incentives to subsidise some low-type consumers in order to take advantage of network effects.

Suggested Citation

  • Jong-Hee Hahn, 2000. "Nonlinear Pricing of Telecommunications with Call and Network Externalities," Keele Department of Economics Discussion Papers (1995-2001) 2000/15, Department of Economics, Keele University, revised Nov 2001.
  • Handle: RePEc:kee:keeldp:2000/15
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    Cited by:

    1. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, vol. 86(1), pages 107-112, January.
    2. Batarce, Marco & Ivaldi, Marc, 2010. "Travel Demand Model with Heterogeneous Users and Endogenous Congestion: An application to optimal pricing of bus services," IDEI Working Papers 659, Institut d'Économie Industrielle (IDEI), Toulouse, revised Apr 2011.
    3. Rojas, Christian, 2017. "How much is an incoming message worth? Estimating the call externality," Information Economics and Policy, Elsevier, vol. 38(C), pages 23-37.
    4. repec:ebl:ecbull:v:4:y:2005:i:2:p:1-7 is not listed on IDEAS
    5. Sjaak Hurkens & Ángel Luis López, 2010. "Mobile Termination and Consumer Expectations under the Receiver-Pays Regime," Working Papers 10-12, NET Institute.
    6. Stremersch, S. & Tellis, G.J. & Franses, Ph.H.B.F. & Binken, J.L.G., 2007. "Indirect Network Effects in New Product Growth," ERIM Report Series Research in Management ERS-2007-019-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    7. Khaïreddine Jebsi & Lionel Thomas, 2005. "Nonlinear pricing of a congestible network good," Economics Bulletin, AccessEcon, vol. 4(2), pages 1-7.
    8. Luis López, Ángel, 2011. "Mobile termination rates and the receiver-pays regime," Information Economics and Policy, Elsevier, vol. 23(2), pages 171-181, June.
    9. Yuichiro Kamada & Aniko Ory, 2016. "Contracting with Word-of-Mouth Management," Cowles Foundation Discussion Papers 2048R, Cowles Foundation for Research in Economics, Yale University, revised Sep 2017.
    10. Joan Calzada & Francesc Trillas, 2005. "The interconnection prices in telecomunications: from theory to practice," Hacienda Pública Española, IEF, vol. 173(2), pages 85-125, June.
    11. Csorba, Gergely, 2008. "Screening contracts in the presence of positive network effects," International Journal of Industrial Organization, Elsevier, pages 213-226.
    12. Hurkens, Sjaak & López, Ángel L., 2014. "Who Should Pay for Two-way Interconnection?," IESE Research Papers D/1102, IESE Business School.
    13. Meng, Dawen & Tian, Guoqiang, 2013. "Entry-Deterring Nonlinear Pricing with Bounded Rationality," MPRA Paper 57935, University Library of Munich, Germany, revised May 2014.
    14. Hahn, Jong-Hee, 2004. "Network competition and interconnection with heterogeneous subscribers," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 611-631, May.
    15. Ryoma Kitamura, 2015. "Cost Reduction can Decrease Pro t and Welfare in a Monopoly," Discussion Paper Series 133, School of Economics, Kwansei Gakuin University, revised Jul 2015.
    16. Ulrich Berger, 2004. "Access Charges in the Presence of Call Externalities," Industrial Organization 0408009, EconWPA, revised 31 Aug 2004.
    17. Harbord, David & Pagnozzi, Marco, 2008. "On-Net/Off-Net Price Discrimination and 'Bill-and-Keep' vs. 'Cost-Based' Regulation of Mobile Termination Rates," MPRA Paper 14540, University Library of Munich, Germany.
    18. Dejan Trifunović & Đorđe Mitrović, 2016. "Price Discrimination, Entry, And Switching Costs In Network Competition," Economic Annals, Faculty of Economics, University of Belgrade, vol. 61(209), pages 129-160, April - J.
    19. Sjaak Hurkens & Angel L. Lopez, 2014. "Who should pay for two-way interconnection?," Working Papers 774, Barcelona Graduate School of Economics.
    20. 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.
    21. Ulrich Berger, 2004. "Bill-and-Keep vs. Cost-Based Access Pricing Revisited," Industrial Organization 0408002, EconWPA.
    22. Meng, Dawen & Tian, Guoqiang, 2008. "Nonlinear Pricing with Network Externalities and Countervailing Incentives," MPRA Paper 41212, University Library of Munich, Germany, revised Aug 2008.
    23. Yuichiro Kamada & Aniko Ory, 2016. "Contracting with Word-of-Mouth Management," Cowles Foundation Discussion Papers 2048, Cowles Foundation for Research in Economics, Yale University.
    24. Edmond Baranes & Laurent Flochel, 2008. "Competition in telecommunication networks with call externalities," Journal of Regulatory Economics, Springer, vol. 34(1), pages 53-74, August.
    25. Gergely Csorba & Jong-Hee Hahn, 2006. "FUNCTIONAL DEGRADATION AND ASYMMETRIC NETWORK EFFECTS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(2), pages 253-268, June.

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