Foreclosing Competition through Access Charges and Price Discrimination

43 Pages Posted: 28 Jul 2009

See all articles by Angel Luis Lopez

Angel Luis Lopez

Autonomous University of Barcelona; IESE Business School

Patrick Rey

Toulouse School of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2009

Abstract

This article analyzes competition between two asymmetric networks, an incumbent and a new entrant. Networks compete in non-linear tariffs and may charge different prices for on-net and off-net calls. Departing from cost-based access pricing allows the incumbent to foreclose the market in a profitable way. If the incumbent benefits from customer inertia, then it has an incentive to insist in the highest possible access markup even if access charges are reciprocal and even in the absence of actual switching costs. If instead the entrant benefits from customer activism, then foreclosure is profitable only when switching costs are large enough.

Keywords: networks, benefits, costs, customer

Suggested Citation

Lopez, Angel Luis and Rey, Patrick, Foreclosing Competition through Access Charges and Price Discrimination (July 1, 2009). IESE Business School Working Paper No. 801, Available at SSRN: https://ssrn.com/abstract=1440157 or http://dx.doi.org/10.2139/ssrn.1440157

Angel Luis Lopez (Contact Author)

Autonomous University of Barcelona ( email )

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HOME PAGE: http://angelluislopez.net

IESE Business School

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HOME PAGE: http://www.angelluislopez.net

Patrick Rey

Toulouse School of Economics ( email )

2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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