Working Paper Series,
Research Institute of Industrial Economics

Abstract: I generalize the workhorse model of network competition to include income effects in demand. Empirical work has shown income effects to be positive and statistically significant. Income effects deliver theoretical results consistent with regulatory concern about excessive termination rates: Unregulated network operators competing in non-discriminatory retail contracts negotiate termination rates above cost for any positive income effect. This also holds when operators discriminate between on-net and off-net calls if networks are differentiated. Operators profit from increasing termination rates above cost under second-degree price discrimination if a sufficient share of consumers prefer on-net/off-net contracts and their subscription demand is relatively inelastic.

Keywords: Income effects; Network competition; Profit neutrality; Second-degree price discrimination; Termination-based discrimination

JEL-codes: L51; L96

39 pages, First version: February 29, 2012. Revised: January 8, 2014.

Full text files

wp903.pdf  

Download statistics

• Research Institute of Industrial Economics
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Elisabeth Gustafsson ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:iuiwop:0903This page generated on 2024-09-13 22:15:49.