Discussion paper

DP9189 The Breakdown of Connectivity Breakdowns

We show that the prediction of a strategic connectivity breakdown under a receiving-party-pays (RPP) system and discrimination between on- and off-net prices does not hold up once more than two networks are considered. Indeed, equilibria with finite call and receiving prices exist for a large and realistic range of call externality values. This allows regulation of termination rates to achieve the socially optimal retail pricing structure under RPP.

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Citation

Hoernig, S (2012), ‘DP9189 The Breakdown of Connectivity Breakdowns‘, CEPR Discussion Paper No. 9189. CEPR Press, Paris & London. https://cepr.org/publications/dp9189