Abstract
This paper analyzes competition between two asymmetric networks, an incumbent and a new entrant. Networks compete in non-linear tariffs and may charge different prices for on-net and off-net calls (”on-net pricing”). The incumbent benefits from a larger installed base and consumers face switching costs. With on-net pricing, departing from cost-based access pricing allows the incumbent to foreclose the market in a profitable way. If the incumbent benefits from customer inertia, then it has an incentive to insist in the highest possible access markup even if access charges are reciprocal and even if the absence of actual switching costs. If instead the entrant benefits from customer activism, then foreclosure is profitable only when switching costs are large enough, and is best achieved through either a limited access markup or through an access subsidy. In all cases, foreclosure is profitable only when it keeps the entrant entirely out of the market. We also show that on-net pricing is a key factor. In its absence, foreclosure is either not profitable (in a caller pays regime) or not feasible (in a receiver pays regime). The analysis supports a qualified call for regulatory authorities to set bounds on access markups (and subsidies) and/or on-net pricing.
Ángel L. López and Patrick Rey
18 November 2008
Download
Foreclosing Competition through Access Charges and Price Discrimination [Download PDF - 404 KiB]
0 Responses to “Foreclosing Competition through Access Charges and Price Discrimination – Ángel L. López and Patrick Rey”