A Retail Benchmarking Approach to Efficient Two-Way Access Pricing

45 Pages Posted: 23 Oct 2007

See all articles by Doh-Shin Jeon

Doh-Shin Jeon

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Sjaak Hurkens

Institute for Economic Analysis-CSIC; Barcelona GSE

Date Written: October 2007

Abstract

We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: for instance, we show that both static and dynamic efficiency can be achieved at the same time.

Keywords: Networks, Access Pricing, Interconnection, Competition Policy, Telecommunications, Investment

JEL Classification: D4, K21, L41, L51, L96

Suggested Citation

Jeon, Doh-Shin and Hurkens, J.P.M. (Sjaak), A Retail Benchmarking Approach to Efficient Two-Way Access Pricing (October 2007). Available at SSRN: https://ssrn.com/abstract=1023884 or http://dx.doi.org/10.2139/ssrn.1023884

Doh-Shin Jeon (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 16 57 (Phone)
(34) 93 542 17 46 (Fax)

J.P.M. (Sjaak) Hurkens

Institute for Economic Analysis-CSIC

campus UAB
Bellaterra, 08193
Spain

Barcelona GSE ( email )

Barcelona
Spain
(34-93) 5806612 (Phone)
(34-93) 5801452 (Fax)

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