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ABSTRACT:
Both senders and receivers of telecommunications messages derive benefits, creating the possibility of externalities. We explore whether intercarrier compensation (i.e., access charges) can induce carriers to internalize these external effects. In important settings, access charges are irrelevant. Where they are relevant, access charges can induce an efficient ratio of off-net send and receive prices--taking their sum as given--but cannot induce the correct sum. The latter requires a mechanism for cross-carrier internalization, such as repeat play or pricing policies contingent on one another. Lastly, non-zero access charges can be efficient even in highly symmetrical situations.

SUGGESTED CITATION:
Benjamin E. Hermalin and Michael L. Katz, "Customer or Complementor? Intercarrier Compensation with Two-Sided Benefits" (July 31, 2006). Competition Policy Center. Paper CPC06-060.
http://repositories.cdlib.org/iber/cpc/CPC06-060