Mobile Termination, Network Externalities and Consumer Expectations

35 Pages Posted: 2 Sep 2014

See all articles by Sjaak Hurkens

Sjaak Hurkens

Institute for Economic Analysis-CSIC; Barcelona GSE

Ángel L. López

Autonomous University of Barcelona

Date Written: September 2014

Abstract

We re‐examine the literature on mobile termination in the presence of network externalities. Externalities arise when firms discriminate between on and off‐net calls or when subscription demand is elastic. This literature predicts that profit decreases and consumer surplus increases when termination charges increase. This is puzzling as in reality regulators are pushing termination rates down while being opposed to do so by network operators. This puzzle is resolved when consumers' expectations are assumed passive but required to be fulfilled in equilibrium, as defined by Katz and Shapiro (1985), instead of being responsive to non‐equilibrium prices, as assumed until now.

Suggested Citation

Hurkens, J.P.M. (Sjaak) and López, Ángel L., Mobile Termination, Network Externalities and Consumer Expectations (September 2014). The Economic Journal, Vol. 124, Issue 579, pp. 1005-1039, 2014. Available at SSRN: https://ssrn.com/abstract=2490190 or http://dx.doi.org/10.1111/ecoj.12097

J.P.M. (Sjaak) Hurkens (Contact Author)

Institute for Economic Analysis-CSIC

campus UAB
Bellaterra, 08193
Spain

Barcelona GSE ( email )

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

Ángel L. López

Autonomous University of Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain

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