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Market Shares, Consumer Ignorance and the Reciprocal Termination Charges

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  • Yu-Shan Lo

Abstract

The aim of this paper is to study different regulatory effects on termination charges and social welfare. We employ a framework with a fixed network and two mobile networks competing in a market to study the following regulatory regimes: collusive and social welfaremaximising reciprocity, uniform termination charge, asymmetric regulation, and direct calling price. We incorporate the idea of partial consumer ignorance when calling to a mobile user and allow the network operator to discriminate between on-net and off-net calls by setting differential calling prices. Compared to the uniform termination charge and asymmetric regulation, it is shown in this paper that the regulator can improve social welfare, without too much intervention, by imposing reciprocity on termination charges. We also find that with stronger consumer ignorance the regulator is more capable of improving social welfare. Further we show that, depending upon the extent of consumer ignorance, direct regulation of calling prices may be a welfare-improving alternative over regulation of termination charges.

Suggested Citation

  • Yu-Shan Lo, "undated". "Market Shares, Consumer Ignorance and the Reciprocal Termination Charges," Discussion Papers 09/19, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:09/19
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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.
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    4. Ralf Dewenter & Justus Haucap, 2005. "The Effects of Regulating Mobile Termination Rates for Asymmetric Networks," European Journal of Law and Economics, Springer, vol. 20(2), pages 185-197, September.
    5. Tommaso Valletti & George Houpis, 2005. "Mobile Termination: What is the “Right” Charge?," Journal of Regulatory Economics, Springer, vol. 28(3), pages 235-258, November.
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    9. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
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    11. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-564, May.
    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. Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(1), pages 1-25, February.
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    More about this item

    Keywords

    Telecommunications; Consumer ignorance; Termination Charges; Regulation;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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