FORECLOSING COMPETITION THROUGH HIGH ACCESS CHARGES AND PRICE DISCRIMINATION

This article analyzes competition between two asymmetric networks, an incumbent and a new entrant. Networks compete in non-linear tariffs and may charge different prices for on-net and off-net calls. When access charges are high, this allows the incumbent to foreclose the market in a profitable way if switching costs are sufficiently large. In the absence of termination-based price discrimination, however, such foreclosure strategies are not profitable.