Calling Circles: Network Competition with Non-Uniform Calling Patterns

32 Pages Posted: 29 Nov 2010

See all articles by Steffen Hoernig

Steffen Hoernig

Nova School of Business and Economics

Roman Inderst

Goethe University Frankfurt

Tommaso M. Valletti

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

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Date Written: November 2010

Abstract

We introduce a flexible model of telecommunications network competition with non-uniform calling patterns, which account for the fact that customers tend to make most calls to a small subset of people. Equilibrium call prices are distorted away from marginal cost, and competitive intensity is affected by the concentration of calling patterns. Contrary to previous predictions, jointly profit-maximizing access charges are set above termination cost in order to dampen competition, and the resulting on-net prices are below off-net prices, if calling patterns are sufficiently concentrated.

Keywords: Network competition, Non-uniform calling patterns, Termination charges

JEL Classification: L13, L51

Suggested Citation

Hoernig, Steffen and Inderst, Roman and Valletti, Tommaso M., Calling Circles: Network Competition with Non-Uniform Calling Patterns (November 2010). CEPR Discussion Paper No. DP8114. Available at SSRN: https://ssrn.com/abstract=1714886

Steffen Hoernig (Contact Author)

Nova School of Business and Economics ( email )

Universidade Nova de Lisboa
Campus de Campolide
Lisboa, 1099-032
Portugal
+351-213801600 (Phone)

HOME PAGE: http://docentes.fe.unl.pt/~shoernig/

Roman Inderst

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60629
Germany
+49 (69) 798-34601 (Phone)
+49 (69) 798-35000 (Fax)

HOME PAGE: http://www.wiwi.uni-frankfurt.de/en/departments/finance/lehrstuhl/prof-dr-roman-inderst/team

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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