On-net and off-net pricing on asymmetric telecommunications networks

The differential between on-net and off-net prices, for example on mobile telephony networks, is hotly debated between telecoms operators and regulators. Small operators contend that their competitors’ high off-net prices are anticompetitive. We show that if the utility of receiving calls is taken into account, the equilibrium pricing structures will indeed depend on firms’ market shares. Larger firms will charge higher off-net prices, even without anticompetitive intent, and both under linear and two-part tariffs. We also show that nevertheless high on-net / off-net differentials can be used for anticompetitive purposes.