Bilateral Market Structures and Regulatory Policies in International Telephone Markets

42 Pages Posted: 24 Nov 2014

See all articles by Heng Ju

Heng Ju

Shanghai University of Finance and Economics - College of Business

Guofu Tan

University of Southern California - Department of Economics

Date Written: November 15, 2014

Abstract

We develop models of bilateral oligopoly with two-way traffic exchanges to study the impact of competition and government regulatory policies on the international telephone markets. When carriers in each country are required to act collectively in setting a uniform settlement rate for inbound traffic, the proportional return rule (PRR) inflates equilibrium settlement rates and neutralizes equilibrium calling prices, although a direct effect of the PRR is to lower domestic calling prices for fixed settlement rates. Both competition and the PRR tend to increase net settlement payments. The overall market efficiency can be achieved only when multiple channels are available for traffic exchanges. Using a panel of 47 countries that exchanged telephone traffic with the U.S. between 1992 and 2004, we test the effects of bilateral market structures and the U.S. government policies on calling prices and settlement rates and the empirical results support our theoretical findings.

Keywords: bilateral oligopoly, competition, settlement rate, settlement payment, proportional return rule, international telephone, regulatory policy

JEL Classification: L13, L5, L96

Suggested Citation

Ju, Heng and Tan, Guofu, Bilateral Market Structures and Regulatory Policies in International Telephone Markets (November 15, 2014). USC-INET Research Paper No. 14-06, Available at SSRN: https://ssrn.com/abstract=2530215 or http://dx.doi.org/10.2139/ssrn.2530215

Heng Ju (Contact Author)

Shanghai University of Finance and Economics - College of Business ( email )

777 Guoding Road
Shanghai, 200433
China

Guofu Tan

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States
213-740-3520 (Phone)

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