Abstract

We introduce call externalities in the standard model of network competition with termination-based price discrimination under a CPP regime, and employ a simple graphical analysis to study the outcome of competition. In contrast to recent results in the literature we find that even under linear pricing, access charges below marginal cost may be used as a collusion device, while off-net calls are priced above on-net calls in equilibrium. Moreover, it turns out that "bill and keep" arrangements may be welfare improving compared with cost based access pricing.