Wednesday, August 10, 2011
Posted by D. Daniel Sokol
Steffen Hoernig (Universidade Nova de Lisboa and CEPR), Roman Inderst (University of Frankfurt (IMFS), Imperial College London and CEPR) and Tommaso Valletti (Imperial College London, University of Rome II and CEPR) have posted Calling Circles: Network Competition with Non-Uniform Calling Patterns.
ABSTRACT: We introduce a flexible model of telecommunications network competition with non-uniform calling patterns, which account for the fact that customers tend to make most calls to a small set of contacts. Equilibrium call prices are distorted away from marginal cost, and competitive intensity is affected by the concentration of calling patterns. Contrary to previous predictions, jointly profit-maximizing access charges are set above termination cost in order to dampen competition, and the resulting on-net prices are below off-net prices, if calling patterns are sufficiently concentrated. We discuss implications for regulating access charges as well as on- and off-net price discrimination.