On the Receiver-Pays Principle
Volume: Volume 35, No. 1
Issue: Spring 2004
Pages: 85-110
Authors: Doh-Shin Jeon, Jean-Jacques Laffont and Jean Tirole
Title: On the Receiver-Pays Principle
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.