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Optimal Two-part Tariffs of Telecommunication Services as an Input

Telecommunication services are typically offered with two-part tariffs which consist of the access charges and the usage charges. In the previous analyses of optimal two-part tariffs, consumers have been assumed to be final users. In this paper, we take the telecommunication service as an input factor which is purchased by business consumers. We proposed a two-stage market model in which the good in queston is produced by an upstream monopolist and purchased as an input by firms and they sell their final outputs in a downstream market. We derive the optimal two-part tariffs of inputs in the case of oligopolistic downstream market with heterogeneous downstream firms. It is shown that two-part tariffs are more desirable than uniform prices from a welfare standpoint. It is also shown that if an upstream monopolist earns positive profits, usage charge is less than marginal cost in the optimal two-part tariffs.