Calling Circles: Network Competition with Non-Uniform Calling Patterns

Hoernig SteffenInderst RomanValletti Tommaso M.
CEIS Research Paper
We introduce a ?exible model of telecommunications network competition with non-uniform calling patterns, which account for the fact that customers tend to make most calls to a small set of contacts. Equilibrium call prices are distorted away from marginal cost, and competitive intensity is a¤ected by the concentration of calling patterns. Contrary to previous predictions, jointly pro?t-maximizing access charges are set above termination cost in order to dampen competition, and the resulting on-net prices are below o¤-net prices, if calling patterns are su¢ ciently concentrated. We discuss implications for regulating access charges as well as on- and o¤-net price discrimination.
Number: 206
Keywords: Network competition; non-uniform calling patterns; termination charge
JEL codes: L13, L51
Date: Monday, July 4, 2011
Revision Date: Monday, July 4, 2011