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Network Interconnection in Telecommunications

Network Interconnection in Telecommunications Abstract This paper discusses industries such as telecommunications where firms each have their own customers and must interconnect with other firms to provide a comprehensive service. Two scenarios are considered: (i) the case of a symmetric, unregulated industry, and (ii) the case of an industry with a dominant, regulated incumbent. In the first, provided there is sufficient product differentiation, it is shown that firms agree to set interconnection charges above associated costs in order to obtain the joint profit‐maximising outcome. In the second a formula for the welfare‐maximizing interconnection charge is derived. Relations with the ‘efficient component pricing rule’ are discussed This content is only available as a PDF. Author notes This work was supported by a grant from the ESRC (grant no. L114251026). I am grateful to Martin Cave, Alain de Fontenay, Glenn Ellison, Alex Larson, Sandy Levin, Michael Katz, David Salant, David Sappington, John Vickers, Xavier Vives, and to Tim Besley and a referee for information and many helpful comments. All remaining errors are my own. © Royal Economic Society 1998 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Economic Journal Oxford University Press

Network Interconnection in Telecommunications

The Economic Journal , Volume 108 (448) – May 1, 1998

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Publisher
Oxford University Press
Copyright
© Royal Economic Society 1998
ISSN
0013-0133
eISSN
1468-0297
DOI
10.1111/1468-0297.00304
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper discusses industries such as telecommunications where firms each have their own customers and must interconnect with other firms to provide a comprehensive service. Two scenarios are considered: (i) the case of a symmetric, unregulated industry, and (ii) the case of an industry with a dominant, regulated incumbent. In the first, provided there is sufficient product differentiation, it is shown that firms agree to set interconnection charges above associated costs in order to obtain the joint profit‐maximising outcome. In the second a formula for the welfare‐maximizing interconnection charge is derived. Relations with the ‘efficient component pricing rule’ are discussed This content is only available as a PDF. Author notes This work was supported by a grant from the ESRC (grant no. L114251026). I am grateful to Martin Cave, Alain de Fontenay, Glenn Ellison, Alex Larson, Sandy Levin, Michael Katz, David Salant, David Sappington, John Vickers, Xavier Vives, and to Tim Besley and a referee for information and many helpful comments. All remaining errors are my own. © Royal Economic Society 1998

Journal

The Economic JournalOxford University Press

Published: May 1, 1998

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