Working Paper No. 903

Network Competition with Income Effects

Published: February 29, 2012, revised March 2013 and January 2014Pages: 39Keywords: Income effects; Network competition; Profit neutrality; Second-degree price discrimination; Termination-based discriminationJEL-codes: L51; L96
Published version

Network Competition with Income Effects Thomas Tangerås

I generalize the workhorse model of network competition to include income effects in demand. Empirical work has shown income effects to be positive and statistically significant. Income effects deliver theoretical results consistent with regulatory concern about excessive termination rates: Unregulated network operators competing in non-discriminatory retail contracts negotiate termination rates above cost for any positive income effect. This also holds when operators discriminate between on-net and off-net calls if networks are differentiated. Operators profit from increasing termination rates above cost under second-degree price discrimination if a sufficient share of consumers prefer on-net/off-net contracts and their subscription demand is relatively inelastic.


Thomas Tangerås


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Sick of Inequality?

An Introduction to the Relationship between Inequality and Health

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In this book Andreas Bergh, Therese Nilsson, IFN and Lund University, and Daniel Waldenström, IFN and Paris School of Economics, France, review the latest research on the relationship between inequality and health. What does inequality mean for our health? Does increasing income inequality affect outcomes such as obesity, life expectancy and subjective well-being?


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