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International Telecom Settlements: Gaming Incentives, Carrier Alliances and Pareto‐Superior Reform
Author(s) -
Malueg David A.,
Schwartz Marius
Publication year - 2001
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00153
Subject(s) - incentive , competition (biology) , arbitrage , pareto principle , payment , business , economics , international economics , microeconomics , finance , operations management , ecology , biology
Liberalized countries that allow competition in international telecommunications favor traffic re‐routing practices as arbitrage against foreign monopolists. This view is seriously incomplete. Monopolists, allied with carriers in liberalized countries, can use these practices to reduce termination payments to nonalliance carriers??thereby harming also consumers in liberalized countries??by gaming regulations that require equal termination rates at both ends and ‘proportional return’ (the monopolist’s traffic is allocated among carriers in proportion to their shares of traffic to its country). We also present a simple bilateral settlements reform that eliminates gaming incentives and other proportional‐return distortions, yet benefits both countries.