(A) game theoretic analysis of the interconnection pricing in network industries

Abstract

Since 1980s, a number of regulatory reforms have been undertaken in most network industries, which has led to a multiplicity of networks owned by competing firms. This structural change would necessarily raise the issues of interconnection pricing. While sound interconnection arrangements are vital to the development of effective competition, how to set the ground rules for interconnection pricing has not been so simple task to the regulator. Indeed, the experience of last decade exhibits that the determination of interconnection prices has been a process characterized by pragmatism and compromise with little academic guidance, which has inevitably brought about severe contentions between interconnecting firms. As an effort to fill the theoretical gaps, this thesis attempts to develop a comprehensive theoretical framework with which a wider range of interconnection pricing issues can be systematically discussed. In doing so, we approach the problems from a game theoretic angle and a synthetic viewpoint as far as possible. Our research consists of the following four parts: i) investigation of regulatory reforms in network industries; ii) classification of network interconnection circumstances, iii) analysis of equilibrium interconnection and retail prices in the absence of regulation; and iv) optimal interconnection pricing from the perspective of regulator. The first part aims at understanding the role of interconnection pricing in view of overall competition policy and how the interconnection pricing issues are geared to other related economic issues. As a result of this part, we provide a synthetic diagram that clarifies crucial factors of interconnection pricing and their interrelationship. In parts ii) and iii), for the sake of capturing major characteristics of network interconnection types, we broadly classify market circumstances in the following three aspects: one-way or two-way network interconnection?; competition or noncompetition between bottlenec...