DP9189 The Breakdown of Connectivity Breakdowns

Author(s): Steffen Hoernig
Publication Date: October 2012
Keyword(s): Connectivity breakdown, Mobile network competition, Receiving party pays, Termination rates
JEL(s): L13, L51
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9189

We show that the prediction of a strategic connectivity breakdown under a receiving-party-pays (RPP) system and discrimination between on- and off-net prices does not hold up once more than two networks are considered. Indeed, equilibria with finite call and receiving prices exist for a large and realistic range of call externality values. This allows regulation of termination rates to achieve the socially optimal retail pricing structure under RPP.