DP8114 Calling Circles: Network Competition with Non-Uniform Calling Patterns
|Author(s):||Steffen Hoernig, Roman Inderst, Tommaso Valletti|
|Publication Date:||November 2010|
|Keyword(s):||Network competition, Non-uniform calling patterns, Termination charges|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=8114|
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.