Working Paper: CEPR ID: DP8060
Authors: Steffen Hoernig
Abstract: We present a tractable model of competition between an arbitrary number of interconnected communications networks in the presence of tariff-mediated network externalities, call externalities, and cost and market share asymmetries. On the theory side, we provide a criterion for stability in expectations and determine equilibrium outcomes in linear and two-part tariffs. As applications, we reconsider mobile termination for calls from the fixed network (FTM), and between mobile networks (MTM). We show that there is a partial FTM waterbed effect under linear tariffs, and that with more than two networks some known duopoly results are reversed: Under multi-part tariffs, consumer surplus may decrease (rather than increase), and under linear tariffs both on- and off-net prices may increase with higher MTM termination charges.
Keywords: call externality; mobile termination rates; multiple networks; on-off net pricing; telecommunications network competition; waterbed effect
JEL Codes: D43; L13; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| multiple asymmetric networks (D85) | partial waterbed effect (C23) |
| partial waterbed effect (C23) | consumer surplus decrease (D41) |
| higher mobile termination rates (L96) | increased off-net prices (D49) |
| increased off-net prices (D49) | reduced competitive intensity (L15) |
| reduced competitive intensity (L15) | raised on-net prices (D49) |
| number of networks (D85) | stability of equilibrium in consumer expectations (D11) |
| equilibrium outcomes under multipart tariffs (F13) | equilibrium outcomes under linear tariffs (F11) |