The Ambivalence of Two-Part Tariffs for Bottleneck Access

Posted by D. Daniel Sokol

Steffen Hoernig and Ingo Vogelsang discuss The Ambivalence of Two-Part Tariffs for Bottleneck Access.

ABSTRACT: Two-part tariffs, when used at the retail level, increase efficiency by lowering the price of marginal units. The same potential for higher efficiency exists for two-part tariffs at wholesale level for a given market structure, but the fixed part of the wholesale tariff can negatively affect the latter. In a simulated competition model of next-generation telecommunications access networks that has been calibrated with engineering cost data, we show that the latter effects strongly outweigh the former. That is, substituting a cost-based linear wholesale access tariff with revenue-equivalent two-part tariffs reduces the number of access seekers and therefore leads to higher prices and lower welfare and consumer surplus.