Regulatory Pricing Rules to Neutralize Network Dominance
37 Pages Posted: 8 Feb 2010
There are 2 versions of this paper
Regulatory Pricing Rules to Neutralize Network Dominance
Date Written: 1996
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.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Access and Interconnection Pricing: How Efficient is the "Efficient Component Pricing Rule"?
-
Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing
By Nicholas Economides, Giuseppe Lopomo, ...
-
Strategic Commitments and the Principle of Reciprocity Interconnection Pricing
By Nicholas Economides, Giuseppe Lopomo, ...
-
Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing
By Nicholas Economides, Giuseppe Lopomo, ...
-
Regulatory Pricing Rules to Neutralize Network Dominance
By Nicholas Economides, Giuseppe Lopomo, ...