Network Competition in Nonlinear Pricing

Posted: 10 Nov 2003

See all articles by Wouter Dessein

Wouter Dessein

University of Chicago - Booth School of Business

Abstract

Previous research, assuming linear pricing, has argued that telecommunications networks may use a high access charge as an instrument of collusion. I show that this conclusion is difficult to maintain when operators compete in nonlinear pricing: (i) As long as subscription demand is inelastic, profits can remain independent of the access charge, even when customers are heterogeneous and networks engage in second-degree price discrimination. (ii) When demand for subscriptions is elastic, networks may increase profits by agreeing on an access charge below marginal cost (relative to cost-based access pricing). Welfare is typically increased by setting the access charge above marginal cost.

Suggested Citation

Dessein, Wouter, Network Competition in Nonlinear Pricing. Available at SSRN: https://ssrn.com/abstract=463781

Wouter Dessein (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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