Abstract
The telecommunication industry is most likely to be a natural monopoly industry and is usually regulated by government. With the technology progress in communication industry, the regulation may not be social desirable. As the number of firms in a telecommunication industry increases, the interconnection among firms are desirable and access pricing issue arises. In most of the previous research in telecommunication industry, the retail price of the followers is assumed to be fixed. The purpose of this paper is to discuss the access pricing policy when the retail price of followers is not given. In addition, we compare the access prices in cases of given retail price and variable retail price. Based on Armstrong, Doyle and Vickers’ (1996) model, we discuss the incumbent’s optimal access prices when there are many price taking followers and also when there is only one follower. We have found in our model that: (1) when the follower is not a price taker, the optimal access charge is ECPR plus the subsidy on access paid to the follower in order to maintain its market power. (2) when the followers are price takers, the optimal access charge is marginal cost pricing. When we consider the existence of the fixed cost of an incumbent in the simple model, we have found that: (1) when the follower is not a price taker, we have the same as in the simple model without fixed cost. (2) when the followers are price takers, the optimal access charge is ECPR plus a positive Ramsey term, i.e., optimal access charge is greater than the ECPR.. This result is similar to the result in Armstrong, Doyle and Vickers (1996). In addition, comparing with the price taking followers case, we have found that the leader’s retail price is higher when the follower is not a price taker. However, the comparing of the access charges between two cases is not possible. It depends both on the leader’s opportunity costs subsidy to the followers. With the fixed cost, the leader’s retail price is higher when the followers are price takers, the optimal access charge is also higher when the follower are price takers.