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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/14297
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| Title: | Strategic Commitments and the Principle of Reciprocity In
Interconnection Pricing |
| Authors: | Economides, Nicholas
Lopomo, Giuseppe
Woroch, Glenn |
| Keywords: | two-way networks
interconnection
reciprocity
imputation |
| Issue Date: | 1998 |
| Publisher: | Stern School of Business, New York University |
| Series/Report no.: | IS-98-10 |
| Abstract: | We discuss the effects of strategic commitments and of network size in
the process of setting interconnection fees across competing networks.
We also discuss the importance of the principles of reciprocity and
imputation of interconnection charges on market equilibria. Reciprocity
means that both networks charge the same for interconnection. Imputation
means that a network charges its customers as much as it charges
customers of the other network for the same service. Assuming that each
consumer cannot subscribe to more than one network, we begin by
analyzing a game of strategic symmetry where the two networks choose all
prices simultaneously. Second, we allow a dominant network to set the
interconnection fee before the opponent network can set its prices. This
results in a price-squeeze on the rival network. Third, we show that the
imposition of a reciprocity rule eliminates the strategic power of the
first mover. Under reciprocity, one network sets the common
interconnection fee at cost, and the equilibrium prices for final
services are lower than in the two previous games without reciprocity.
Moreover, prices under reciprocity obey the principle of imputation. In
the long run, consumers subscribe to one of the two networks. Typically,
there is a multiplicity of equilibria, including corner equilibria,
where all consumers subscribe to the same network. However, under
reciprocity, there are no corner equilibria. |
| URI: | http://hdl.handle.net/2451/14297 |
| Appears in Collections: | IOMS: Information Systems Working Papers
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