Bargaining over Interconnection : The Clear - Telecom Dispute ∗

We explore the problem of network interconnection in local telecommunications. We develop a model with a competitive business sector and a regulated residential sector. The model is used to analyse the celebrated New Zealand antitrust case between Clear and Telecom. We discuss implications of the model for the eonomics of antitrust, including issues of competition versus efficiency and the use of appropriate economic models. We also examine the implications of some proposed rules for interconnection. In particular, we examine reciprocity, ‘bill and keep’, and the rule that the courts ultimately endorsed, the Baumol-Willig rule. Running head: Bargaining over Interconnection JEL Classification: L11, L41, L96 Corresponding author Dr. Julian Wright Department of Economics University of Auckland Private Bag 92019 Auckland, New Zealand Ph: 09-373-7599 ext. 7943 Fax: 09-373-7427 ∗We gratefully acknowledge the helpful comments of Iain Fraser and two anonymous referees. We thank Richard Edlin for outstanding research assistance and the Centre for Research in Network Economics and Communications at the University of Auckland for financial support.