Discussion paper

DP8114 Calling Circles: Network Competition with Non-Uniform Calling Patterns

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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Citation

Inderst, R, T Valletti and S Hoernig (2010), ‘DP8114 Calling Circles: Network Competition with Non-Uniform Calling Patterns‘, CEPR Discussion Paper No. 8114. CEPR Press, Paris & London. https://cepr.org/publications/dp8114