Asymmetric Network Interconnection

Abstract

We develop a model of competition between interconnected networks, that allows for carriers to differ in size. Under two-part pricing, we show that because of asymmetry the larger network will always prefer a reciprocal interconnection charge be set at cost. For sufficiently large asymmetry the smaller network will have the same preference. The results suggest a particularly simple regulation can achieve desirable outcomes - if carriers cannot agree on the terms of interconnection, the larger carrier is entitled to select the access price which is then applied reciprocally.