Network Competition: Workhorse Resurrection

21 Pages Posted: 14 Nov 2010 Last revised: 27 Jun 2012

See all articles by Thomas Tangerås

Thomas Tangerås

Research Institute of Industrial Economics (IFN)

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Date Written: September 28, 2010

Abstract

I generalize the work horse model of network competition (Armstrong,1998; Laffont, Rey and Tirole, 1998 a, b) to include income effects incall demand. Income effects imply that call demand depends also on the subscription fee, not only on the call price. In the standard case of differentiated networks, weak income effects are enough to deliver results in line with stylized facts: The networks have an incentive to agree on high mobile termination rates to soften competition. They charge a higher price for calls outside (off-net) than inside (on-net) the network. This vindicates the use of (a perturbation of) the workhorse model of network competition.

Keywords: Bill-and-keep, call price discrimination, network competition,non-linear prices, pro t neutrality

Suggested Citation

Tangerås, Thomas, Network Competition: Workhorse Resurrection (September 28, 2010). NYU Working Paper, NET Institute Working Paper No. 10-05, Available at SSRN: https://ssrn.com/abstract=1708771

Thomas Tangerås (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

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