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Competition and Mergers in Networks with Call Externalities

GATE Working Paper No. 03-08

35 Pages Posted: 15 Jun 2006 Last revised: 10 May 2010

Edmond Baranes

Université Montpellier 1

Laurent Flochel

University Lyon 2

Date Written: December 1, 2003


This paper considers a model of two interconnected networks with different qualities. There are call externalities in the sense that consumers value calls they send and receive. Networks compete in two part tariffs. We show that call externalities create private incentives for each competitor to charge low access prices. This result moderates the risk of tacit collusion when competitors can freely negotiate their access charges. We also analyze the case of a merger between the two networks and give conditions under which the merger can be welfare improving.

Keywords: call externalities, interconnection, mergers, telecommunications

JEL Classification: D43, K21, L41, L96

Suggested Citation

Baranes, Edmond and Flochel, Laurent, Competition and Mergers in Networks with Call Externalities (December 1, 2003). GATE Working Paper No. 03-08. Available at SSRN: or

Edmond Baranes (Contact Author)

Université Montpellier 1 ( email )

Avenue de la Mer Site Richter
163 Rue Auguste Broussonnet
34006 Montpellier Cedex 1, Cedex 2 34090

Laurent Flochel

University Lyon 2 ( email )

93, chemin des Mouilles - B.P.167
69130 Ecully cedex


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