Network Competition: I. Overview and Nondiscriminatory Pricing

RAND Journal of Economics, Vol. 29, No. 1, Winter 1997

Posted: 7 Jan 1998

See all articles by Jean-Jacques Laffont

Jean-Jacques Laffont

University of Southern California - Department of Economics (Deceased)

Patrick Rey

Toulouse School of Economics; Centre for Economic Policy Research (CEPR)

Jean Tirole

University of Toulouse 1 - Industrial Economic Institute (IDEI); University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ); Centre for Economic Policy Research (CEPR)

Abstract

We develop a model of unregulated competition between interconnected networks and analyze the mature and transition phases of the industry in this deregulated environment. Networks pay (negotiated or regulated) access charges to each other and compete in prices for customers. We show that a competitive equilibrium may fail to exist for large access charges or for large network substitutability and that freely negotiated access charges may prevent effective competition in the mature phase of the industry and erect barriers to entry in the transition toward competition. Last, we examine the meaning and impact of policies such as the efficient component pricing rule.

JEL Classification: D41, L11

Suggested Citation

Laffont, Jean-Jacques and Rey, Patrick and Tirole, Jean, Network Competition: I. Overview and Nondiscriminatory Pricing. RAND Journal of Economics, Vol. 29, No. 1, Winter 1997. Available at SSRN: https://ssrn.com/abstract=47960

Jean-Jacques Laffont (Contact Author)

University of Southern California - Department of Economics (Deceased)

No Address Available

Patrick Rey

Toulouse School of Economics ( email )

2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jean Tirole

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Place Anatole France
21 Allees de Brienne
F-31042 Toulouse Cedex
France
+33 5 61 12 8642 (Phone)
+33 5 61 12 8637 (Fax)

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ) ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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