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On-Net/Off-Net Price Discrimination and 'Bill-and-Keep' vs. 'Cost-Based' Regulation of Mobile Termination Rates

  • Harbord, David
  • Pagnozzi, Marco

This paper surveys the recent literature on competition between mobile network operators in the presence of call externalities and network effects. It shows that the regulation of mobile termination rates based on “long-run incremental costs” increases networks’ strategic incentives to inefficiently set high on-net/off-net price differentials, thus harming smaller networks and new entrants. The paper argues in favor of a “bill-and-keep” system for mobile-to-mobile termination, and presents international evidence in support of this conclusion.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14540.

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Date of creation: Jan 2008
Date of revision:
Handle: RePEc:pra:mprapa:14540
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  1. Ahn, Hyungtaik & Lee, Myeong-Ho, 1999. "An econometric analysis of the demand for access to mobile telephone networks," Information Economics and Policy, Elsevier, vol. 11(3), pages 297-305, September.
  2. Tommaso Valletti & George Houpis, 2005. "Mobile Termination: What is the “Right” Charge?," Journal of Regulatory Economics, Springer, vol. 28(3), pages 235-258, November.
  3. Armstrong, Mark & Wright, Julian, 2007. "Mobile call termination in the UK," MPRA Paper 2344, University Library of Munich, Germany.
  4. 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.
  5. Christos Genakos & Tommaso Valletti, 2007. "Testing the 'Waterbed' Effect in Mobile Telephony," CEP Discussion Papers dp0827, Centre for Economic Performance, LSE.
  6. Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer, vol. 14(1), pages 1-25, February.
  7. 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.
  8. Atiyas, Izak & Dogan, PInar, 0. "When good intentions are not enough: Sequential entry and competition in the Turkish mobile industry," Telecommunications Policy, Elsevier, vol. 31(8-9), pages 502-523, September.
  9. Joshua S. Gans & Stephen P. King & Julian Wright, 2005. "Wireless Communications," Monash Economics Working Papers archive-45, Monash University, Department of Economics.
  10. Gruber, Harald & Verboven, Frank, 1999. "The Diffusion of Mobile Telecommunications Services in the European Union," CEPR Discussion Papers 2054, C.E.P.R. Discussion Papers.
  11. Ulrich Berger, 2004. "Access Charges in the Presence of Call Externalities," Industrial Organization 0408009, EconWPA, revised 31 Aug 2004.
  12. Daniel Birke, 2010. "Network effects, network structure and consumer interaction in mobile telecommunications in Europe and Asia," Post-Print hal-00870187, HAL.
  13. Wright Julian, 2002. "Bill and Keep as the Efficient Interconnection Regime?," Review of Network Economics, De Gruyter, vol. 1(1), pages 1-7, March.
  14. Nakil Sung & Yong-Hun Lee, 2002. "Substitution between Mobile and Fixed Telephones in Korea," Review of Industrial Organization, Springer, vol. 20(4), pages 367-374, June.
  15. Dessein, Wouter, 2003. " Network Competition in Nonlinear Pricing," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 593-611, Winter.
  16. K. Andersson & � Foros & F. Steen, 2009. "Text and voice: complements, substitutes or both?," Industrial and Corporate Change, Oxford University Press, vol. 18(6), pages 1231-1247, December.
  17. Luís Cabral, 2007. "Dynamic Price Competition with Network Effects," Working Papers 22, Portuguese Competition Authority.
  18. Daniel Birke & G. Swann, 2006. "Network effects and the choice of mobile phone operator," Journal of Evolutionary Economics, Springer, vol. 16(1), pages 65-84, April.
  19. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages F270-F307, 06.
  20. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, vol. 86(1), pages 107-112, January.
  21. Calzada, Joan & Valletti, Tommaso, 2005. "Network Competition and Entry Deterrence," CEPR Discussion Papers 5381, C.E.P.R. Discussion Papers.
  22. Littlechild, S.C., 0. "Mobile termination charges: Calling Party Pays versus Receiving Party Pays," Telecommunications Policy, Elsevier, vol. 30(5-6), pages 242-277, June.
  23. Cambini, Carlo & Valletti, Tommaso, 2005. "Information Exchange and Competition in Communications Networks," CEPR Discussion Papers 5031, C.E.P.R. Discussion Papers.
  24. 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.
  25. Barros, Pedro Luis Pita & Cadima, Nuno, 2000. "The Impact of Mobile Phone Diffusion on the Fixed-Link Network," CEPR Discussion Papers 2598, C.E.P.R. Discussion Papers.
  26. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  27. 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.
  28. Patrick Degraba, 2003. "Efficient Intercarrier Compensation for Competing Networks When Customers Share the Value of A Call," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(2), pages 207-230, 06.
  29. Degraba Patrick, 2002. "Bill and Keep as the Efficient Interconnection Regime?: A Reply," Review of Network Economics, De Gruyter, vol. 1(1), pages 1-5, March.
  30. Berger Ulrich, 2005. "Access Charges in the Presence of Call Externalities," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-18, January.
  31. Hahn, Jong-Hee, 2003. "Nonlinear pricing of telecommunications with call and network externalities," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 949-967, September.
  32. Cambini, Carlo & Valletti, Tommaso M., 2003. "Network competition with price discrimination: 'bill-and-keep' is not so bad after all," Economics Letters, Elsevier, vol. 81(2), pages 205-213, November.
  33. 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.
  34. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  35. 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.
  36. Daniel Birke & G. M. Peter Swann, 2005. "Social networks and choice of mobile phone operator," Occasional Papers 14, Industrial Economics Division.
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