Pricing Strategies and Welfare Effects of Competition between Two Next-Generation Platforms

This paper presents the results of a computational application that dynamically models competition between two Next-Generation Networks (NGN) called platforms. As NGNs serve multiple types of consumers, we consider end-users and content providers who both require connection to the platform. The dynamics of competition are modeled by calculating equilibrium prices in each of a number of time periods. Equilibrium prices are a function of market shares and content provision in the previous period, along with prices and traffic patterns in the current period. We use the model to examine three issues of relevance to the current telecommunications policy debate: whether duopoly competition is viable, and if so how its performance compares to alternative regulated or monopoly outcomes; the impact of interconnection charges on total surplus and the distribution of surplus among market participants; and the impact of platform usage charges for content providers or more explicit blocking of off-platform content on total surplus and the distribution of surplus