A retail benchmarking approach to efficient two-way access pricing: No termination-based price discrimination

Abstract

We study access pricing rules that determine the access prices between two networks as a linear function of marginal costs and (average) retail prices set by both networks. When firms compete in linear prices, there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of underlying demand conditions. When firms compete in two-part tariffs, there exists a class of rules under which firms choose the variable price equal to the marginal cost. Therefore, the regulator can choose among these rules to pursue additional objectives such as increasing consumer surplus or promoting socially optimal investment. Copyright © 2008, RAND.