Bargaining Over Interconnection: The Clear-Telecom Dispute

Abstract

We explore the problem of network interconnection in local telecommunications. We develop a model with a competitive business sector and a regulated residential sector. The model is used to analyze the celebrated New Zealand antitrust case between Clear and Telecom. We discuss implications of the model for the economics of antitrust, including issues of competition versus efficiency and the use of appropriate economic models. We also examine the implications of some proposed rules for interconnection. In particular, we examine reciprocity, "Bill and Keep," and the rule which the courts ultimately endorsed, the Baumol-Willig rule.

JEL Classification: L96, L41, L43, L51