Paper #808

Title:

A simple access pricing rule to achieve the Ramsey outcome for interconnected networks

Author:

Doh-Shin Jeon

Date:

February 2005 (Revised: September 2005)

Abstract:

This paper considers a general and informationally efficient approach to determine the optimal access pricing rule for interconnected networks. It shows that there exists a simple rule that achieves the Ramsey outcome as the unique equilibrium when networks compete in linear prices without network-based price discrimination. The approach is informationally efficient in the sense that the regulator is required to know only the marginal cost structure, i.e. the marginal cost of making and terminating a call. The approach is general in that access prices can depend not only on the marginal costs but also on the retail prices, which can be observed by consumers and therefore by the regulator as well. In particular, I consider the set of linear access pricing rules which includes any fixed access price, the Efficient Component Pricing Rule (ECPR) and the Modified ECPR as special cases. I show that in this set, there is a unique rule that implements the Ramsey outcome as the unique equilibrium independently of the underlying demand conditions.

Keywords:

Networks, Access Pricing, Interconnection, Competition Policy

JEL codes:

D4, K21, L41, L51, L96

Area of Research:

Microeconomics

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