Regulating Prices for Shifting Between Service Providers

Abstract:     
The price that a regulated access provider charges for shifting customers between service providers has significant welfare implications. Typical regulatory approaches to pricing, such as pricing based on fully allocated cost or incremental cost, ignore the characteristics of consumer demand. A theoretical alternative, Ramsey pricing, considers only the elasticity of demand for given products. This paper directs attention to the competitive process. Using U.S. long-distance telephone services as an example, this paper shows how empirical evidence concerning customer acquisition costs, customer switching costs, and churn among service providers can help to inform price regulation. Attention to such factors highlights for regulators trade-offs involved in promoting different forms and dimensions of competition.

Number of Pages in PDF File: 34

JEL Classification: K23, L51, L96, D43

working papers series