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Competition and mergers in networks with call externalities

Listed author(s):
  • Baranes, E.
  • Flochel, L.

This paper considers a model of two interconnected networks with different qualities. There are call externalities in the sense that consumers value calls they send and receive. Networks compete in two part tariffs. We show that call externalities create private incentives for each competitor to charge low access prices. This result moderates the risk of tacit collusion when competitors can freely negotiate their access charges. We also analyze the case of a merger between the two networks and give conditions under which the merger can be welfare improving.

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File URL: http://www.creden.univ-montp1.fr/downloads/cahiers/CC-03-10-37.pdf
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Paper provided by CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1 in its series Cahiers du CREDEN (CREDEN Working Papers) with number 03.10.37.

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Length: 48 pages
Date of creation: 2003
Handle: RePEc:mop:credwp:03.10.37
Contact details of provider: Postal:
CREDEN, Faculté d'Economie, Avenue Raymond Dugrand, CS 79606, 34960 MONTPELLIER Cedex 2, France

Phone: 33 (0)4 67 15 83 60
Fax: 33 (0)4 67 15 84 04
Web page: http://www.creden.univ-montp1.fr

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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, EconWPA.
  2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
  3. Wright, Julian, 2002. "Access Pricing under Competition: An Application to Cellular Networks," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 289-315, September.
  4. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  5. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-564, May.
  6. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 27-46, February.
  7. Hahn, Jong-Hee, 2004. "Network competition and interconnection with heterogeneous subscribers," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 611-631, May.
  8. 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.
  9. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, vol. 71(3), pages 413-420, June.
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