Tariff-Mediated Network Effects Versus Strategic Discounting: Evidence from German Mobile Telecommunications

31 Pages Posted: 26 Jul 2012 Last revised: 2 Jan 2014

See all articles by Leon Zucchini

Leon Zucchini

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Jörg Claussen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management); Copenhagen Business School - Department of Innovation and Organizational Economics

Moritz Trüg

Maastricht School of Business and Economics

Date Written: April 2013

Abstract

Mobile telecommunication operators routinely charge subscribers lower prices for calls on their own network than for calls to other networks (on-net discounts). Studies on tariff-mediated network effects suggest this is due to large operators using on-net discounts to damage smaller rivals. Alternatively, research on strategic discounting suggests small operators use on-net discounts to advertise with low on-net prices. We test the relative strength of these effects using data on tariff setting in German mobile telecommunications between 2001 and 2009. We find that large operators are more likely to offer tariffs with on-net discounts but there is no consistently significant difference in the magnitude of discounts. Our results suggest that tariff-mediated network effects are the main cause of on-net discounts.

Keywords: Competition, Network effects, Mobile telecommunications, Pricing strategies

JEL Classification: D22, L11, L96

Suggested Citation

Zucchini, Leon and Claussen, Jörg and Trüg, Moritz, Tariff-Mediated Network Effects Versus Strategic Discounting: Evidence from German Mobile Telecommunications (April 2013). International Journal of Industrial Organization, 31 (6), 2013, 751-759, Available at SSRN: https://ssrn.com/abstract=2117158 or http://dx.doi.org/10.2139/ssrn.2117158

Leon Zucchini (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstrasse 4
Munich, 80539
Germany

Jörg Claussen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

Copenhagen Business School - Department of Innovation and Organizational Economics ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Moritz Trüg

Maastricht School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

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