Network Competition: II. Price Discrimination

Jean-Jacques Laffont, Patrick Rey and Jean Tirole

RAND Journal of Economics, 1998, vol. 29, issue 1, 38-56

Abstract: Our companion article developed a clear conceptual framework of negotiated or regulated interconnection agreements between rival operators and studied competition between interconnected networks, under the assumption of nondiscriminatory pricing. This article relaxes this assumption and allows networks to charge different prices for calls terminating on the subscriber's network and those terminating on a rivals network. This creates a price differential between services that are identical for the consumer and generates network externalities despite network interconnection. We show that in both the mature and entry phases of the industry, the nature of competition is substantially affected by such price discrimination.

Date: 1998
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