Calling Circles: Network Competition with Non-Uniform Calling Patterns
Nova School of Business and Economics; Centre for Economic Policy Research (CEPR)
University of Frankfurt; Imperial College London
Tommaso M. Valletti
Imperial College Business School; University of Rome II - Department of Financial and Quantitative Economics; Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. DP8114
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 subset of people. 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.
Number of Pages in PDF File: 32
Keywords: Network competition, Non-uniform calling patterns, Termination charges
JEL Classification: L13, L51working papers series
Date posted: November 29, 2010
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