DP6866 Tariff-Mediated Network Externalities: Is Regulatory Intervention Any Good?
|Publication Date:||June 2008|
|Keyword(s):||Network competition, on/off-net differentials, retail price controls, termination fees|
|JEL(s):||L13, L51, L96|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=6866|
Mobile phone networks' practice of charging higher prices for off-net than for on-net calls has been pinpointed as the source of two competition problems: underprovision of calls and permanent disadvantages for small networks. We consider these allegations and four different remedies: limiting on/off-net differentials or off-net margins, lower termination fees, and asymmetric termination fees. In all cases a trade-off has to be made between efficiency and networks' profits on the one hand, and consumer surplus on the other. Indeed, the total welfare effects of regulating on/off-net differentials are ambiguous and depend on demand characteristics.