| Abstract | dc.description.abstract | This paper studies the welfare implications of equilibrium behavior in a market characterized
by competition between two interconnected telecommunication firms, subject to
constraints: the customers belong to a social network. Using numerical approximations we
show that social networks matter because equilibrium prices and welfare critically depend
on how people are socially related. Next, the model is used to study the effectiveness of
alternative regulatory schemes. The standard regulated environment, in which the authority
defines interconnection access charges as being equal to marginal costs and final prices
are left to the market, is considered as a benchmark. Then, we focus on the performance
of two different regulatory interventions. First, access prices are set below marginal costs
to foster competition. Second, switching costs are reduced to intensify competition. The
results show that the second strategy is more efective to obtain equilibrium prices closer
to Ramsey’s level. | en_US |
