Local And Long-Distance Network Competition

Abstract

We develop a model of competition between interconnected networks, with separate local and long-distance markets, allowing for various degrees of symmetry between carriers. Assuming two part pricing, we show that effective competition can be achieved with simple regulations involving mandatory interconnection and reciprocal access charges. We find that not only will interconnected local networks want to agree on cost based interconnection charges, but that through competition for local market shares they will also solve the familiar one-way access pricing problem between local providers and long-distance competitors. We analyze the implications of allowing for integrated firms and non-reciprocal access agreements in our model.