Pricing Network Interconnection: Advantages Held by Integrated Telecom Carriers

Pricing Network Interconnection: Advantages Held by Integrated Telecom Carriers A recurring telecommunications policy debate centers on whether incumbent, vertically integrated local exchange carriers have an incentive to discriminate in price against down-stage service rivals who interconnect to their network (a price squeeze). The concern is typically voiced in one of two claims: (1) there is an incentive for an incumbent to use a price squeeze when access prices are set above long-run incremental cost; or (2) prices set at that cost are preferred for interconnection because they eliminate incentives for a price squeeze. In principle, form (1) is generally true (Proposition 1), but form (2) is generally not (Proposition 2), The proof of these Propositions reveals why pricing access at long-run incremental cost coupled with appropriate price floors in the down-stage market does eliminate the incentive to squeeze. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Pricing Network Interconnection: Advantages Held by Integrated Telecom Carriers

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2005 by Springer
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-005-5711-1
Publisher site
See Article on Publisher Site

Abstract

A recurring telecommunications policy debate centers on whether incumbent, vertically integrated local exchange carriers have an incentive to discriminate in price against down-stage service rivals who interconnect to their network (a price squeeze). The concern is typically voiced in one of two claims: (1) there is an incentive for an incumbent to use a price squeeze when access prices are set above long-run incremental cost; or (2) prices set at that cost are preferred for interconnection because they eliminate incentives for a price squeeze. In principle, form (1) is generally true (Proposition 1), but form (2) is generally not (Proposition 2), The proof of these Propositions reveals why pricing access at long-run incremental cost coupled with appropriate price floors in the down-stage market does eliminate the incentive to squeeze.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Apr 19, 2005

References

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