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The Role of Social Networks on Regulation in the Telecommunication Industry

Rodrigo Harrison, Gonzalo Hernández and Roberto Muñoz.

No 350, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: This paper studies the welfare implications of equilibrium behavior in a market characterized by competition between two interconnected telecommunication firms, subject to constraints: the customers belong to a social network. It also shows that social networks matter because equilibrium prices and welfare critically depend on how people are socially related. Next, the model is used to study effectiveness of alternative regulatory schemes. The standard regulated environement, in which the authority defines interconnection ac cess charges as being equal to marginal costs and final prices are left to the market, is considered as a benchmark. Then, we focus on the performance of two different regulatory interventions. First, access prices are set below marginal costs to foster competition. Second, switching costs are reduced to intensify competition. The results show that the second strategy is more efective to obtain equilibrium prices closer to Ramsey's level.

Keywords: Access charges; social networks; random regular graphs (search for similar items in EconPapers)
JEL-codes: C70 D43 D60 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic, nep-net, nep-reg and nep-ure
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