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Network Competition and Access Charge Rules

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  • Toker Doganoglu
  • Yair Tauman

Abstract

This paper presents a model of two competing local telecommunications networks which are mandated to interconnect. After negotiating the access charges, the companies engage in price competition. Given the prices, each consumer selects a network and determines the consumption of phone calls. Using a discrete/continuous consumer choice model, it is shown that a pure strategy equilibrium exists quite generally and satisfies desirable properties. This equilibrium can be implemented by a simple rule that sets the access charges at a common discount from the retail prices. It requires no information and the discount factor is chosen by the companies through negotiations. Finally, if the networks are highly substitute, the retail prices obtained by imposing this rule will approximate the efficient prices.

Suggested Citation

  • Toker Doganoglu & Yair Tauman, 2002. "Network Competition and Access Charge Rules," Manchester School, University of Manchester, vol. 70(1), pages 16-35, January.
    • Handle: RePEc:bla:manchs:v:70:y:2002:i:1:p:16-35
    DOI: 10.1111/1467-9957.00281
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    Cited by:

    1. Stennek, Johan & Tangerås, Thomas, 2006. "Competition vs. Regulation in Mobile Telecommunications," Working Paper Series 685, Research Institute of Industrial Economics.
    2. Johan Stennek & Thomas TangerŒs, 2008. "Intense Network Competition," Working Papers 08-36, NET Institute, revised Sep 2008.
    3. van de Wielle, B., 2003. "Regulate or Deregulate : Influencing Network Interconnenction Charges," Other publications TiSEM d924b4d1-a743-4853-b977-d, Tilburg University, School of Economics and Management.
    4. Peitz, Martin & Valletti, Tommaso M. & Wright, Julian, 2004. "Competition in telecommunications: an introduction," Information Economics and Policy, Elsevier, vol. 16(3), pages 315-321, September.
    5. Doh-Shin Jeon, 2005. "A simple access pricing rule to achieve the Ramsey outcome for interconnected networks," Economics Working Papers 808, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2005.
    6. Joan Calzada & Tommaso M. Valletti, 2008. "Network Competition and Entry Deterrence," Economic Journal, Royal Economic Society, vol. 118(531), pages 1223-1244, August.
    7. van de Wielle, B., 2003. "Regulate or Deregulate : Influencing Network Interconnenction Charges," Discussion Paper 2003-68, Tilburg University, Center for Economic Research.
    8. Doh‐Shin Jeon & Sjaak Hurkens, 2008. "A retail benchmarking approach to efficient two‐way access pricing: no termination‐based price discrimination†," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 822-849, September.

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