Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 03/04: Why is on-net traffic cheaper than off-net traffic? Access markup as a collusive device and a barrier to entry

Tommy Staahl Gabrielsen () and Steinar Vagstad ()
Additional contact information
Tommy Staahl Gabrielsen: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Steinar Vagstad: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway

Abstract: Received literature have shown that if competing networks are restricted to linear and uniform pricing, high access charges can facilitate collusion; a result that breaks down if we allow for non-linear and discriminatory pricing, however. In this paper we add unbalanced calling pattern to the model and show that this may restore the use of high access charges. High access charges may make the firms collude on high prices. Moreover, when allowing for entry, we show that incumbents can profitably charge high access prices as a device to deter or soften entrants.

Keywords: Two-way access; non-linear pricing; competition; entry.

JEL-codes: D43; L12; L13

32 pages, June 23, 2004

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