DP5588 On-Net and Off-Net Pricing on Asymmetric Telecommunications Networks

Author(s): Steffen Hoernig
Publication Date: March 2006
Keyword(s): asymmetry, call externality, on/off-net pricing, telecommunications network competition
JEL(s): L51
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5588

The differential between on-net and off-net prices, for example on mobile telephony networks, is an issue that is hotly debated between telecoms operators and regulators. Small operators contend that their competitors' high off-net prices are anticompetitive. We show that if the utility of receiving calls is taken into account, the equilibrium pricing structures will indeed depend on firms' market shares. Larger firms will charge higher off-net prices even without anticompetitive intent, both under linear and two-part tariffs. Predative behavior would be accompanied by even larger on-net / off-net differentials even if access charges are set at cost.