Network Competition: I. Overview and Nondiscriminatory Pricing

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