Regulating Termination Charges for Telecommunications Networks

Melbourne Business School Working Paper No.2000-13

16 Pages Posted: 22 Oct 2000

See all articles by Joshua S. Gans

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Stephen P. King

Monash University - Department of Economics; Productivity Commission

Date Written: October 2000

Abstract

This paper considers the effects of regulating termination for interconnected telecommunications networks. We develop two models, the first that involves fixed market shares and the second, based on the work of Laffont, Rey and Tirole (1998a), which allows for subscriber competition. We show that if a dominant network (i.e., one with the greatest market share) has its termination charges regulated then this will tend to lower the average price of calls. It is also likely to lead to other networks raising their termination charges. If market shares are fixed, then extending termination regulation to non-dominant networks lowers call prices and is unambiguously welfare improving. However, if networks actively compete for subscribers then extending termination charge regulation to a non-dominant network may lead to higher call prices. This is most likely if the non-dominant network has a very low market share relative to the dominant network.

JEL Classification: L41, L96

Suggested Citation

Gans, Joshua S. and King, Stephen Peter, Regulating Termination Charges for Telecommunications Networks (October 2000). Melbourne Business School Working Paper No.2000-13. Available at SSRN: https://ssrn.com/abstract=245368 or http://dx.doi.org/10.2139/ssrn.245368

Joshua S. Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stephen Peter King

Monash University - Department of Economics ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Productivity Commission ( email )

Level 28
35 Collins St.
Melbourne, Victoria, Victoria 3000
Australia

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