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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26253
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| Title: | Regulatory Pricing Rules To Neutralize Network Dominance, |
| Authors: | Economides, Nicholas
Lopomo, Giuseppe
Woroch, Glenn |
| Keywords: | two-way networks
interconnection
reciprocity
imputation
unbundling |
| Issue Date: | Sep-1996 |
| Series/Report no.: | EC-96-14 |
| Abstract: | This paper evaluates the effectiveness of several pricing rules intended
to promote entry into a network industry dominated by an incumbent
carrier. Drawing on the work of Cournot and Hotelling, we develop a
model of competition between two interconnected networks. In a symmetric
equilibrium, the price of cross-network calls exceeds the price of
internal calls. This “calling circle discount” tends to
“tip” the industry to a monopoly equilibrium as would a
network externality. By equalizing charges for terminating calls,
reciprocity eliminates differences between internal and cross-network
prices and makes monopoly less likely. Imputation counteracts an
incentive by the dominant network to “price squeeze” a rival
by eliminating differences in the wholesale price of termination and the
implicit price for internal use. By increasing profits of rival networks
and increasing their subscribers' surplus, imputation supports
additional entry. Finally, an unbundling rule reduces termination fees
charged by a dominant network that was engaging in pure bundling. Again,
entry will be facilitated as rival networks offer potential subscribers
a more attractive rate schedule. |
| URI: | http://hdl.handle.net/2451/26253 |
| Appears in Collections: | Economics Working Papers
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