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Calling Circles: Network Competition with Non-Uniform Calling Patterns

We introduce a flexible model of telecommunications network competition with non-uniform calling patterns, which account for the fact that customers tend to make most calls to a small set of contacts. Equilibrium call prices are distorted away from marginal cost, and competitive intensity is affected by the concentration of calling patterns. Contrary to previous predictions, jointly profit-maximizing access charges are set above termination cost in order to dampen competition, and the resulting on-net prices are below off-net prices, if calling patterns are sufficiently concentrated. We discuss implications for regulating access charges as well as on- and off-net price discrimination.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 206.

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Length: 38 pages
Date of creation: 04 Jul 2011
Date of revision: 04 Jul 2011
Handle: RePEc:rtv:ceisrp:206
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  1. Mengze Shi & Botao Yang & Jeongwen Chiang, 2009. "A Dyad Model of Calling Behaviour with Tie Strength Dynamics," Working Papers 09-12, NET Institute, revised Sep 2009.
  2. Calzada, Joan & Valletti, Tommaso, 2005. "Network Competition and Entry Deterrence," CEPR Discussion Papers 5381, C.E.P.R. Discussion Papers.
  3. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  4. Armstrong, Mark & Wright, Julian, 2007. "Mobile call termination in the UK," MPRA Paper 2344, University Library of Munich, Germany.
  5. 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.
  6. 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.
  7. Valletti, Tommaso M & Cave, Martin, 1998. "Competition in UK mobile communications," Telecommunications Policy, Elsevier, vol. 22(2), pages 109-131, March.
  8. Christos Genakos & Tommaso Valletti, 2007. "Testing the "Waterbed" Effect in Mobile Telephony," CEP Discussion Papers dp0827, Centre for Economic Performance, LSE.
  9. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  10. Fjeldstad, Øystein & Moen, Espen R & Riis, Christian, 2010. "Competition with Local Network Externalities," CEPR Discussion Papers 7778, C.E.P.R. Discussion Papers.
  11. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  12. Gabrielsen, Tommy Staahl & Vagstad, Steinar, 2008. "Why is on-net traffic cheaper than off-net traffic Access markup as a collusive device," European Economic Review, Elsevier, vol. 52(1), pages 99-115, January.
  13. Armstrong, Mark, 2004. "Network interconnection with asymmetric networks and heterogeneous calling patterns," Information Economics and Policy, Elsevier, vol. 16(3), pages 375-390, September.
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