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Access Charges in the Presence of Call Externalities

  • Ulrich Berger

    (Vienna University of Economics)

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    We introduce call externalities in the standard model of network competition with termination-based price discrimination, and employ a simple graphical analysis to study the outcome of competition. In contrast to recent results in the literature, we find that even under linear pricing, access charges below marginal cost are used as a collusion device, while off-net prices are above on-net prices in equilibrium. Moreover, "bill and keep" arrangements may be welfare improving compared with cost-based access pricing.

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    Paper provided by EconWPA in its series Industrial Organization with number 0408009.

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    Length: 19 pages
    Date of creation: 31 Aug 2004
    Date of revision: 31 Aug 2004
    Handle: RePEc:wpa:wuwpio:0408009
    Note: Type of Document - pdf; pages: 19
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    1. Doh Shin Jeon & Jean Jacques Laffont & Jean Tirole, 2001. "On the receiver pays principle," Economics Working Papers 561, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Dessein, Wouter, 2003. " Network Competition in Nonlinear Pricing," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 593-611, Winter.
    3. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, vol. 86(1), pages 107-112, January.
    4. Joshua S. Gans & Stephen P. King & Julian Wright, 2005. "Wireless Communications," Monash Economics Working Papers archive-45, Monash University, Department of Economics.
    5. 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.
    6. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
    7. 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.
    8. Jeong-Yoo Kim & Yoonsung Lim, 2000. "An Economic Analysis of the Receiver Pays Principle," Econometric Society World Congress 2000 Contributed Papers 0334, Econometric Society.
    9. 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.
    10. 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.
    11. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
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