Network Competition with Reciprocal Proportional Access Charge Rules
This paper presents a model of two competing local telecommunications networks, similar in spirit to the model of Laffont, Rey and Tirole(1996). The networks have different attributes which we assume are fixed and the consumers have idiosyncratic tastes for these attributes. The networks are mandated to interconnect and the access charges are determined cooperatively in the first stage. In the second stage, the two network companies are engaged in a price competition to attract consumers. In the third stage, each consumer selects a network and determines the consumption of phone calls. Laffont, Rey and Tirole have shown that except for restrictive scenarios, the local price competition does not result in a pure strategy equilibrium. In this paper, we assume that the two companies choose access charge rules rather than simply access charges. These rules determine the access charges as a function of the future local prices. We show that the family of reciprocal proportional access charge rules generates a pure strategy equilibrium and we discuss its properties.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean-Jacques Laffont & Jean Tirole, 1994.
"Access Pricing and Competition,"
94-31, Massachusetts Institute of Technology (MIT), Department of Economics.
- Laffont, Jean-Jacques & Tirole, Jean, 1992. "Access Pricing and Competition," IDEI Working Papers 19, Institut d'Économie Industrielle (IDEI), Toulouse.
- J-J. Laffont & J. Tirole, 1994. "Access Pricing and Competition," Working papers 95-11, Massachusetts Institute of Technology (MIT), Department of Economics.
- Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer, vol. 14(1), pages 1-25, February.
- Nicholas Economides & Lawrence J. White, 1995.
"Access and Interconnection Pricing: How Efficient is the Efficient Component Pricing Rule?,"
95-04, New York University, Leonard N. Stern School of Business, Department of Economics.
- Nicholas Economides & Lawrence J. White, 1997. "Access and Interconnection Pricing: How Efficient is the Efficient Component Pricing Rule?," Industrial Organization 9701003, EconWPA.
- Nicholas S. Economides & Glenn A. Woroch, 1992.
"Benefits and Pitfalls of Network Interconnection,"
92-31, New York University, Leonard N. Stern School of Business, Department of Economics.
- Armstrong, M. & Doyle, C. & Vickers, J., 1995.
"The access pricing problem: a synthesis,"
Discussion Paper Series In Economics And Econometrics
9532, Economics Division, School of Social Sciences, University of Southampton.
- Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-56, November.
- Muench, Thomas J., 1988. "Quantum agglomeration formation during growth in a combined economic/gravity model," Journal of Urban Economics, Elsevier, vol. 23(2), pages 199-214, March.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpio:9611001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.