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Competition and Mergers in Networks with Call Externalities

Edmond Baranes

Université Montpellier 1

Laurent Flochel

University Lyon 2

December 1, 2003

GATE Working Paper No. 03-08

This paper considers a model of two interconnected networks with different qualities. There are call externalities in the sense that consumers value calls they send and receive. Networks compete in two part tariffs. We show that call externalities create private incentives for each competitor to charge low access prices. This result moderates the risk of tacit collusion when competitors can freely negotiate their access charges. We also analyze the case of a merger between the two networks and give conditions under which the merger can be welfare improving.

Number of Pages in PDF File: 35

Keywords: call externalities, interconnection, mergers, telecommunications

JEL Classification: D43, K21, L41, L96

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Date posted: June 15, 2006 ; Last revised: May 10, 2010

Suggested Citation

Baranes, Edmond and Flochel, Laurent, Competition and Mergers in Networks with Call Externalities (December 1, 2003). GATE Working Paper No. 03-08. Available at SSRN: http://ssrn.com/abstract=908242 or http://dx.doi.org/10.2139/ssrn.908242

Contact Information

Edmond Baranes (Contact Author)
Université Montpellier 1 ( email )
Avenue de la Mer Site Richter
29 Rue de l'Université
34006 Montpellier Cedex 1, Cedex 1
Laurent Flochel
University Lyon 2 ( email )
93, chemin des Mouilles - B.P.167
69130 Ecully cedex
HOME PAGE: http://www.gate.cnrs.fr/equipe/perso/flochel/flochel.html?
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