Working Paper: CEPR ID: DP5031
Authors: Carlo Cambini; Tommaso Valletti
Abstract: We develop a model of information exchange between calling parties. We characterize the equilibrium when two interconnected networks compete for such users by charging both for outgoing and incoming calls. We show that networks have reduced incentives to use off-net price discrimination to induce a connectivity breakdown when calls originated and received are complements in the information exchange. This breakdown disappears if operators are allowed to negotiate reciprocal access charges. We also show that a ?bill-and-keep? system over access charges can approximate an efficient regime and we discuss when this system emerges from private negotiations.
Keywords: access charges; bill-and-keep; information exchange; interconnection; reception charges
JEL Codes: L41; L96
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| calls originated and received are complements (L96) | reduced incentives for off-net price discrimination (D49) |
| reduced incentives for off-net price discrimination (D49) | connectivity breakdown (L96) |
| operators negotiate reciprocal access charges (L96) | connectivity breakdown is eliminated (L96) |
| reciprocal access charges (L96) | lower off-net prices (D49) |
| lower off-net prices (D49) | more appealing networks to users (D85) |
| bill-and-keep system (E42) | efficient regime (H21) |