nep-net New Economics Papers
on Network Economics
Issue of 2012‒06‒05
one paper chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Termination-Based Price Discrimination: Tariff-Mediated Network Effects and the Fat-Cat Effect By Claussen, Jörg; Trüg, Moritz; Zucchini, Leon

  1. By: Claussen, Jörg; Trüg, Moritz; Zucchini, Leon
    Abstract: Mobile telecommunications operators routinely charge higher prices for off-net than on-net calls. Previous research provides two alternative propositions on whether on-net / off-net price differentials (OOD) are more attractive for large or for small operators. On the one hand studies on tariff-mediated network effects suggest that large operators use OOD to damage smaller rivals. On the other hand research on consumer behavior suggests that small operators may use OOD to attract customers with low on-net prices, trapping large operators with the “Fat-cat effectâ€. We test the relative strength of the two effects using data on tariff setting in the German market for mobile telecommunications from 2004 to 2009. We find that large operators are more likely to offer tariffs with OOD but that there is no significant difference between large and small operators in the magnitude of the differentials. Our findings support the proposition that large firms use tariff-mediated network effects as a competitive instrument, but also suggest the alternative theory may have some merit.
    Keywords: Telecommunications; Competition; Network effects; Customers; Pricing
    JEL: D22 L11 L96
    Date: 2011–12

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