Working Paper: CEPR ID: DP6866
Authors: Steffen Hoernig
Abstract: 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.
Keywords: network competition; on-off net differentials; retail price controls; termination fees
JEL Codes: L13; L51; L96
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher prices for off-net calls (D49) | Inefficiencies and disadvantages for small networks (D85) |
| Imposing limits on on-off net differentials (C69) | Reduces off-net prices (D49) |
| Imposing limits on on-off net differentials (C69) | Increases on-net prices (D49) |
| Lowering termination fees (D49) | Increases welfare (D69) |
| Lowering termination fees (D49) | Increases networks' profits (D85) |
| Lowering termination fees (D49) | Harms consumer surplus (D11) |
| Imposition of caps on on-net margins of large networks (D85) | Does not raise on-net prices (D49) |
| Imposition of caps on on-net margins of large networks (D85) | Qualitatively similar effects to limiting on-off net differentials (C69) |