Dynamic Network Interconnection Under Consumer Switching Costs

Previous research has argued that telecommunications networks under nonlinear pricing cannot use reciprocal access charges as an instrument of collusion as long as the market is mature and there is either full participation or an exogenous participation rate. This paper shows that (even symmetric) networks with full participation can however use reciprocal access charges to soften competition when they compete in a dynamic framework. This result has clear policy implications, since total welfare is maximized with cost-based access prices