Mobile Termination and Consumer Expectations Under the Receiver-Pays Regime

Abstract:     
We analyze how termination charges aect retail prices when taking into account that receivers derive some utility from a call and when rms may charge consumers for receiving calls. A novel feature of our paper is that we consider passive self-fullling expectations and do not allow for negative reception charges. Firms only charge for receiving calls when the termination charge is below cost. We reconrm the nding of prot neutrality when rms cannot use termination-based price discrimination. When rms can use termination-based price discrimination prots do depend on the termination charge. When the call externality is strong, rms prefer a below cost termination charge and will use RPP. When the call externality is weak, rms prefer a termination charge above cost. The termination charge that maximizes total welfare is below cost and would induce an RPP regime.

Number of Pages in PDF File: 34

Keywords: Bill and Keep, Call Externality, Access Pricing, Interconnection, Receiver Pays, Consumer Expectations

JEL Classification: D43, K23, L51, L96

working papers series