Customer or Complementor? Intercarrier Compensation with Two‐Sided Benefits

Benjamin Hermalin and Michael Katz ()

Journal of Economics & Management Strategy, 2011, vol. 20, issue 2, 379-408

Abstract: Both senders and receivers derive benefits from telecommunications messages. Hence, consumers’ sending and receiving decisions generate external effects. We explore whether intercarrier compensation (i.e., an access charge) can induce carriers to set retail prices that internalize these external effects. We find that an access charge can induce constrained‐efficient sending and receiving prices for exchanging messages across networks, taking the sum of these prices as given, but cannot induce the correct sum. We also show that the internalizing role for the access charge can imply a nonzero access charge is efficient even in highly symmetrical situations, and that the efficient access charge may be positive or negative.

Date: 2011
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https://doi.org/10.1111/j.1530-9134.2011.00292.x

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Working Paper: Customer or Complementor? Intercarrier Compensation with Two-Sided Benefits (2006)
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