Abstract
A recurring telecommunications policy debate centers on whether incumbent, vertically integrated local exchange carriers have an incentive to discriminate in price against down-stage service rivals who interconnect to their network (a price squeeze). The concern is typically voiced in one of two claims: (1) there is an incentive for an incumbent to use a price squeeze when access prices are set above long-run incremental cost; or (2) prices set at that cost are preferred for interconnection because they eliminate incentives for a price squeeze. In principle, form (1) is generally true (Proposition 1), but form (2) is generally not (Proposition 2), The proof of these Propositions reveals why pricing access at long-run incremental cost coupled with appropriate price floors in the down-stage market does eliminate the incentive to squeeze.
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Krouse, C.G., Krouse, E. Pricing Network Interconnection: Advantages Held by Integrated Telecom Carriers. Rev Ind Organ 27, 35–46 (2005). https://doi.org/10.1007/s11151-005-5711-1
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DOI: https://doi.org/10.1007/s11151-005-5711-1