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Discussion Paper Details

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Title: Calling Circles: Network Competition with Non-Uniform Calling Patterns

Author(s): Steffen Hoernig, Roman Inderst and Tommaso Valletti

Publication Date: November 2010

Keyword(s): Network competition, Non-uniform calling patterns and Termination charges

Programme Area(s): Industrial Organization

Abstract: We introduce a flexible model of telecommunications network competition with non-uniform calling patterns, which account for the fact that customers tend to make most calls to a small subset of people. Equilibrium call prices are distorted away from marginal cost, and competitive intensity is affected by the concentration of calling patterns. Contrary to previous predictions, jointly profit-maximizing access charges are set above termination cost in order to dampen competition, and the resulting on-net prices are below off-net prices, if calling patterns are sufficiently concentrated.

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Bibliographic Reference

Hoernig, S, Inderst, R and Valletti, T. 2010. 'Calling Circles: Network Competition with Non-Uniform Calling Patterns'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8114