Dynamic Competition in Telecom Networks Under the Receiver Party Pays Principle

This paper analyzes how the implementation of the Receiver Party Pays regime affects networks operators' pricing strategies in a model of dynamic competition. We characterize the equilibrium and provide sufficient conditions under which it exists and is unique. We show that in equilibrium networks price calls at their off-net cost, and that the off-net cost pricing equilibrium neutralizes the potential role that future reciprocal access charges could play as an instrument to undermine retail competition. Last, we argue that while the level of the termination charge does not affect networks' profits, it clearly distorts consumer welfare