A Retail Benchmarking Approach to Efficient Two-Way Access Pricing: Two-Part Tariffs

Abstract

We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under competition in linear prices, derived by Jeon (2005), but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under the class of rules. Therefore, the regulator can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: in particular, we show that the regulator can achieve static and dynamic efficiency at the same time.