Nonlinear Pricing of Telecommunications with Call and Network Externalities

Jong-Hee Hahn

No 2000/15, Keele Department of Economics Discussion Papers (1995-2001) from Department of Economics, Keele University

Abstract: This paper investigates how call and network externalities affect a monopolist’s optimal nonlinear pricing of a two-way telecommunication service. The existence of call externalities results in all types of subscribers (even the highest type) making suboptimal quantities of calls in the optimum. This is because the firm being not allowed to charge incoming calls cannot control the quantities of incoming calls. Due to call externalities, there may exist some subscribers who only receive calls without making any outgoing calls in equilibrium. Also, the firm may have incentives to subsidise some low-type consumers in order to take advantage of network effects.

Keywords: Telecommunications; Call and Network Externalities; Nonlinear Pricing; Cross-Subsidies. JEL classification : D42; L12; L96. (search for similar items in EconPapers)
Pages: 23 pages
Date: 2000, Revised 2001-11
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Published in International Journal of Industrial Organization, vol. 21, issue 7, September 2003, pages 949-967. [ doi:10.1016/S0167-7187(03)00003-1 ]

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