A Simple Access Pricing Rule to Achieve the Ramsey Outcome in Two-Way Access

Abstract

In this paper, I consider a general and informationally efficient approach to determine the optimal access rule and show that there exists a simple rule that achieves the Ramsey outcome as the unique equilibrium when networks compete in linear prices without network-based price discrimination. My approach is informationally efficient in the sense that the regulator is required to know only the marginal cost structure, i.e. the marginal cost of making and terminating a call. The approach is general in that access prices can depend not only on the marginal costs but also on the retail prices, which can be observed by consumers and therefore by the regulator as well. In particular, I consider the set of linear access pricing rules which includes any Þxed access price, the Efficient Component Pricing Rule (ECPR) and the ModiÞed ECPR as special cases. I show that in this set, there is a unique access rule that achieves the Ramsey outcome as the unique equilibrium as long as there exists at least a mild degree of substitutability among networks’ services.