The pricing of international telecommunications services by monopoly operators

Abstract

International telecommunications operators usually set their own tariffs, but traditionally reimburse one another at a uniform settlement rate. We identify profit maximising tariffs where settlement rates are initially allowed to differ. We then explore Nash bargaining over settlement rates. We show that only under circumstances which are unlikely to occur in practice will two monopoly operators agree on a system of common settlement rates. However, we show that one operator in collusion with its regulatory authority always has an incentive to insist on uniform settlement rates as a precondition for negotiation.