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Information Exchange and Competition in Communications Networks

Author

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  • Valletti, Tommaso
  • Cambini, Carlo
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.

Suggested Citation

  • Valletti, Tommaso & Cambini, Carlo, 2005. "Information Exchange and Competition in Communications Networks," CEPR Discussion Papers 5031, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5031
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    References listed on IDEAS

    as
    1. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
    2. Tommaso M. Valletti & Carlo Cambini, 2005. "Investments and Network Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 446-468, Summer.
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    7. Julian Wright, 2002. "Access Pricing under Competition: An Application to Cellular Networks," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 289-315, September.
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    9. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-564, May.
    10. Armstrong, Mark & Wright, Julian, 2007. "Mobile call termination in the UK," MPRA Paper 2344, University Library of Munich, Germany.
    11. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 27-46, February.
    12. Doh-Shin Jeon & Jean-Jacques Laffont & Jean Tirole, 2004. "On the Receiver-Pays Principle," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 85-110, Spring.
    13. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
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    15. Ulrich Berger, 2004. "Access Charges in the Presence of Call Externalities," Industrial Organization 0408009, University Library of Munich, Germany, revised 31 Aug 2004.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Interconnection; Access charges; Reception charges; Bill-and-keep; Information exchange;
    All these keywords.

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

    NEP fields

    This paper has been announced in the following NEP Reports:

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