The wholesale competition in International Telecommunications System

1
The wholesalecompetition in International
Telecommunications System
Livio Cricelli University of Cassino,
Italy Massimo Gastaldi University of L'Aquila,
Italy Nathan Levialdi University of Rome Tor
Vergata, Italy
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Summary

• Introduction on International Telecommunications
• The Carter and Wright model
• The new competitive model
• Carrier Strategies
• Conclusions

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Ten years of change in International traffic
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International VoIP and PSTN traffic Summary
1997-2001
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Carter e Wright model (1999)

• Surplus Þ wi v(pi) ri v(pi) max u(q)
  pq
• additional benefits
• q1 b/2s (1-x)/2s q2 x/2s
• Indifferent additional benefits
• q1 q2
• b/2s (1-x)/2s x/2s

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Carter e Wright model (1999)
S1
S2
0
1
Market shares S1 ½ b/2 s (w1-w2) S2 ½ -
b/2 s (w2-w1)
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New competitive scenario
Final Market A
1
2
3
n
t1BA
t2BA
t3BA
tnBA
 
Intermediate market
 
t1AB
t2AB
t3AB
tmAB
1
2
3
m
Final Market B
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New competitive model
W1 b/2s (1-S1A)/2s W2 (1-S2A)/2s W2
(1-S2A)/2s W3 (1-S3A)/2s .. W
n-1 (1-Sn-1A)/2s Wn (1-SnA)/2s Subject to
SSj 1
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New competitive model
The market share in the final market A     for
every j ?2
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Relation between market shares and number of
carriers
Incumbent
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New competitive model
Profit functions of generic carrier j
if
 if
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Carriers Strategies
Incumbent maximazing profit price (Bertrand
competition in the final market A)
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Carriers Strategies
Incumbent undercatting strategy
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Incumbent market A price level undercatting
strategy
Carriers number in market A
Price in final market B
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Incumbent market A tariff level undercatting
strategy
QqBA/ qAB
Price in final market B
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Incumbent market A profit undercatting strategy
Carriers number in market A
Price in final market B
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Carriers Strategies
Bertrand Competition
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Profits Comparison
Competition
n2
n300
Competition
Limit Price
Limit Price
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Carriers Strategies
Bertrand Competition with the follower
undercutting strategy in the final market
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Follower market A price level competition
Carriers number in A
Price in final market B
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Follower market share competition
Price in final market B
Price in final market A
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Profits sensibility analysis
Incumbent
Follower
Price in final market B
Price in final market B
Demand elasticity
Demand elasticity
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Conclusions

• The incumbent undercutting strategy in the
  intermediate market produces a lower level of
  profits with respect to Bertrand competition and
  such gap is as much high as greater is the number
  of competitors.
• If the incumbent decides to allow the market
  entrance of a new carrier, an undercutting
  strategy in the final market carried out by the
  follower will be more reasonable as much high as
  great is the profits gap.
• This strategic option depends mainly to the
  interconnection cost level and so will be more
  feasible in the case of IP transmission
  technology.