Mobile Termination, Network Externalities, and Consumer Expectations

Angel Luis López and Sjaak Hurkens

No 441, Working Papers from Barcelona School of Economics

Abstract: We re-examine the literature on mobile termination in the presence of network externalities. Externalities arise when firms discriminate between on- and off-net calls or when subscription demand is elastic. This literature predicts that profit decreases and consumer surplus increases in termination charge in a neighborhood of termination cost. This creates a puzzle since in reality we see regulators worldwide pushing termination rates down while being opposed by network operators. We show that this puzzle is resolved when consumers' expectations are assumed passive but required to be fulfilled in equilibrium (as defined by Katz and Shapiro, AER 1985), instead of being rationally responsive to non-equilibrium prices, as assumed until now.

Keywords: networks; rational expectations; Regulation; access pricing; Interconnection; Telecommunications (search for similar items in EconPapers)
JEL-codes: D4 K23 L51 L96 (search for similar items in EconPapers)
Date: 2015-09
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Mobile Termination, Network Externalities and Consumer Expectations (2014)
Working Paper: Mobile Termination, Network Externalities, and Consumer Expectations (2010)
Working Paper: Mobile termination, network externalities, and consumer expectations (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:441

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