Network competition in nonlinear pricing

Previous research has argued that, in the mature phase of competition, telecommunications networks may use access charges as an instrument of collusion. We show that this result depends totally on the assumption of linear pricing. Though under nonlinear pricing, the access charge alters the way networks use menus of tariffs to discriminate implicitly among heterogeneous customers, profits are then independent of the access charge, or, if participation constraints are binding, are maximized by the welfare maximizing access charge. In the entry phase, networks often differ in cost structure. An access markup then affects the level playing field between networks.