On the "receiver-pays" principle

Doh Shin Jeon, Jean Jacques Laffont, Jean Tirole

Research output: Contribution to journalArticle

66 Scopus citations

Abstract

This article extends the theory of network competition by allowing receivers to derive a surplus from receiving calls and to affect the volume of communications by hanging up. We investigate how receiver charges affect internalization of the call externality. When the receiver charge and the termination charge are both regulated, there exists an efficient equilibrium. When reception charges are market determined, each network finds it optimal to set the prices for calling and reception at its off-net costs. The symmetric equilibrium is efficient for a proper choice of termination charge. Last, network-based price discrimination creates strong incentives for connectivity breakdowns.

Original languageEnglish (US)
Pages (from-to)85-110
Number of pages26
JournalRAND Journal of Economics
Volume35
Issue number1
DOIs
StatePublished - Jan 1 2004

ASJC Scopus subject areas

  • Economics and Econometrics

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