Working Paper: CEPR ID: DP5588
Authors: Steffen Hoernig
Abstract: 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.
Keywords: asymmetry; call externality; on-offnet pricing; telecommunications network competition
JEL Codes: L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| larger firms (L25) | higher offnet prices (D49) |
| larger firms (L25) | significant onnet-offnet price differentials (D49) |
| market share (L17) | pricing structure (D49) |
| asymmetry and call externalities (D62) | equilibrium pricing (D41) |
| larger firms (L25) | engage in price discrimination (L42) |
| low onnet price (D49) | larger onnet-offnet differentials (L96) |
| high onnet price with low fixed fee (D49) | larger onnet-offnet differentials (L96) |