Working Paper: CEPR ID: DP8114
Authors: Steffen Hoernig; Roman Inderst; Tommaso Valletti
Abstract: 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.
Keywords: network competition; nonuniform calling patterns; termination charges
JEL Codes: L13; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Access charges (L90) | Competitive intensity (L13) |
| Concentration of calling patterns (D30) | Pricing strategies (D49) |
| Jointly profit-maximizing access charges (L90) | Network competition (D85) |
| Concentration of calling patterns (D30) | On-net prices vs Off-net prices (D49) |
| Access charges above termination costs (L90) | Competition (L13) |
| Access charges (L90) | Marginal subscriber attractiveness (D49) |