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Mobile Network Competition, Customer Ignorance and Fixed-to-Mobile Call Prices

Author

Listed:
  • Gans, J.S.
  • King, S.P.

Abstract

This paper examines the influence of mobile network competition on the prices of fixed-to-mobile calls. Because fixed line customers cannot, in general, distinguish the identity of a specific mobile network, these networks have market power when setting termination charges for calls from fixed lines. We show that: (1) unregulated mobile termination charges will result in higher than monopoly call prices; (2) the regulation of termination charges and prices downward will affect mobile subscription rates and may lower these rates; and (3) regulation of any mobile carrier's termination charges can reduce fixed to mobile prices but will result in an increase in unregulated carriers' termination charges. When fixed line consumers can distinguish between the different mobile networks they are calling, fixed to mobile call prices will fall relative to their level under customer ignorance. Direct mobile charging for termination also exerts downward pressure on the total fixed to mobile call price. A low cost method of lowering fixed to mobile charges would be to facilitate the identification of carriers by consumers and to restructure billing so that mobile networks are able to directly charge fixed line consumers for termination services.

Suggested Citation

  • 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.
  • Handle: RePEc:mlb:wpaper:734
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-00-01/734.pdf
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    References listed on IDEAS

    as
    1. Baron, David P., 1989. "Design of regulatory mechanisms and institutions," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 24, pages 1347-1447 Elsevier.
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    4. 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.
    5. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
    6. 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.
    7. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 131-150, June.
    8. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-930, July.
    9. Gans, Joshua S & Williams, Philip L, 1999. "Access Regulation and the Timing of Infrastructure Investment," The Economic Record, The Economic Society of Australia, vol. 75(229), pages 127-137, June.
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    More about this item

    Keywords

    TELECOMMUNICATIONS ; PRICES ; REGULATION;

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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