Mobile termination, network externalities and consumer expectations

Sjaak Hurkens, Ángel L. López

Research output: Contribution to journalArticleResearchpeer-review

32 Citations (Scopus)

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 when termination charges increase. This is puzzling as in reality regulators are pushing termination rates down while being opposed to do so by network operators. This puzzle is resolved when consumers' expectations are assumed passive but required to be fulfilled in equilibrium, as defined by Katz and Shapiro (1985), instead of being responsive to non-equilibrium prices, as assumed until now. © 2013 Royal Economic Society.
Original languageEnglish
Pages (from-to)1005-1039
JournalEconomic Journal
Volume124
Issue number579
DOIs
Publication statusPublished - 1 Jan 2014

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