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Fixed-line incumbents often also own the largest mobile network. We consider the effect of this joint ownership on market outcomes. Our model predicts that while fixed-to-mobile call prices to the integrated mobile network are more efficient than under separation, those to rival mobile networks are distorted upwards, amplifying any incumbency advantage. This result is robust to changes in the competitiveness of the fixed market and to the presence of fixed-mobile substitution. As concerns potential remedies, a uniform off-net pricing constraint leads to higher welfare than functional separation, and even allows to maintain some of the efficiency gains.
KeywordsNetwork competition On/off-net pricing Integration Call externality
JEL ClassificationL51 L92
Acknowledges funding through grant PTDC/EGEECO/100696/2008 of the Ministry of Science and Technology.
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