An optimal pricing model for interconnection

Aldo van Weezel

Abstract


This work presents an optimal access-pricing model, based in the work of Armstrong, Doyle & Vickers (1996), but including network externalities. In the model, there is an incumbent firm owning the essential facility, and an entrant who needs to buy access to final consumers. This situation is studied comparing first-best optimum and Ramsey pricing. The findings show that prices are lower when network externalities are included, and the importance of giving some kind of incentive to the firms which introduce new technology, so that the network can grow and the consumers can get the benefits of the network externalities.

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