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on Network Economics |
| By: | Sjaak Hurkens; Doh-Shin Jeon |
| Abstract: | In this paper, we study how access pricing affects network competition when subscription demand is elastic and each network uses non-linear prices and can apply termination-based price discrimination. In the case of a fixed per minute termination charge, we find that a reduction of the termination charge below cost has two opposing effects: it softens competition but helps to internalize network externalities. The former reduces mobile penetration while the latter boosts it. We find that firms always prefer termination charge below cost for either motive while the regulator prefers termination below cost only when this boosts penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008) that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase penetration without distorting call volumes. |
| Keywords: | Mobile Penetration, Termination Charge, Access Pricing, Networks, Interconnection, Regulation, Telecommunications |
| JEL: | D4 K23 L51 L96 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1166&r=net |
| By: | Yu-Shan Lo; ; |
| Abstract: | The aim of this paper is to study different regulatory effects on termination charges and social welfare. We employ a framework with a fixed network and two mobile networks competing in a market to study the following regulatory regimes: collusive and social welfaremaximising reciprocity, uniform termination charge, asymmetric regulation, and direct calling price. We incorporate the idea of partial consumer ignorance when calling to a mobile user and allow the network operator to discriminate between on-net and off-net calls by setting differential calling prices. Compared to the uniform termination charge and asymmetric regulation, it is shown in this paper that the regulator can improve social welfare, without too much intervention, by imposing reciprocity on termination charges. We also find that with stronger consumer ignorance the regulator is more capable of improving social welfare. Further we show that, depending upon the extent of consumer ignorance, direct regulation of calling prices may be a welfare-improving alternative over regulation of termination charges. |
| Keywords: | Telecommunications; Consumer ignorance; Termination Charges, Regulation |
| JEL: | L13 L50 L96 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:09/19&r=net |
| By: | Michal Grajek (ESMT European School of Management and Technology); Lars-Hendrik Röller (ESMT European School of Management and Technology) |
| Abstract: | We provide evidence of an inherent trade-off between access regulation and investment incentives in telecommunications by using a comprehensive data set covering 70+ fixed-line operators in 20 countries over 10 years. Our econometric model accommodates: different investment incentives for incumbents and entrants; a strategic interaction of entrants’ and incumbents’ investments; and endogenous regulation. We find access regulation to negatively affect both total industry and individual carrier investment. Thus promoting market entry by means of regulated access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher incumbents’ investments encourage provision of regulated access. |
| Keywords: | telecommunications, access regulation, unbundling, investment |
| JEL: | C51 L59 L96 |
| Date: | 2009–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-09-004&r=net |
| By: | Aguirregabiria, Victor; Ho, Chun-Yu |
| Abstract: | This paper studies the contribution of demand, costs, and strategic factors to the adoption of hub-and-spoke networks in the US airline industry. Our results are based on the estimation of a dynamic oligopoly game of network competition that incorporates three groups of factors that may explain hub-and-spoke networks: (1) travelers may value the services associated with the scale of operation of an airline in the hub airport; (2) operating costs and entry costs in a route may decline with the airline's scale of operation in the origin and destination airports (e.g., economies of scale and scope); and (3) a hub-and-spoke network may be an effective strategy to deter the entry of other carriers. We estimate the model using data from the Airline Origin and Destination Survey with information on quantities, prices, and entry and exit decisions for every airline company in the routes between the 55 largest US cities. As methodological contributions, we propose and apply a method to reduce the dimension of the state space in dynamic games, and a procedure to deal with the problem of multiple equilibria when using a estimated model to make counterfactual experiments. We find that the most important factor to explain the adoption of hub-and-spoke networks is that the cost of entry in a route declines importantly with the scale of operation of the airline in the airports of the route. For some of the larger carriers, strategic entry deterrence is the second most important factor to explain hub-and-spoke networks. |
| Keywords: | Airline industry; Hub-and-spoke networks; Entry costs; Industry dynamics; Estimation of dynamic games; Counterfactual experiments in models with multiple equilibria. |
| JEL: | C10 L93 L13 C63 L10 C35 C73 |
| Date: | 2009–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16739&r=net |