Information Exchange and Competition in Communications Networks

22 Pages Posted: 2 Jan 2009

See all articles by Carlo Cambini

Carlo Cambini

Politecnico di Torino & EUI - Florence School of Regulation; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

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Abstract

We develop a model of information exchange between calling parties. We characterize the equilibrium when two interconnected networks compete by charging both for outgoing and incoming calls. We show that networks have reduced incentives to use off-net price discrimination to induce a connectivity breakdown when calls originated and received are complements in the information exchange. This breakdown disappears if operators are allowed to negotiate reciprocal access charges. We also study the relationship between sending and receiving retail charges as a function of the level of access charges. We identify circumstances where private negotiations over access charges induce first-best retail prices.

Suggested Citation

Cambini, Carlo and Valletti, Tommaso M., Information Exchange and Competition in Communications Networks. The Journal of Industrial Economics, Vol. 56, Issue 4, pp. 707-728, December 2008. Available at SSRN: https://ssrn.com/abstract=1319579 or http://dx.doi.org/10.1111/j.1467-6451.2008.00365.x

Carlo Cambini (Contact Author)

Politecnico di Torino & EUI - Florence School of Regulation ( email )

Corso Duca degli Abruzzi, 24
Torino, Torino 10129
Italy
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European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

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Florence, Florence 50014
Italy

Tommaso M. Valletti

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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