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D. MARK KENNET & DAVID J. GABEL

Fully Distributed Cost Pricing, Ramsey Pricing, and Shapley Value Pricing: A Simulated Welfare Analysis for the Telephone Exchange. D. MARK KENNET & DAVID J. GABEL . INTRODUCTION. Pricing Schemes: Fully Distributed Cost Pricing (FDC) Ramsey Pricing (RP) Shapley Pricing (SP)

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D. MARK KENNET & DAVID J. GABEL

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  1. Fully Distributed Cost Pricing, Ramsey Pricing, and Shapley Value Pricing: A Simulated Welfare Analysis for the Telephone Exchange D. MARK KENNET & DAVID J. GABEL

  2. INTRODUCTION • Pricing Schemes: • Fully Distributed Cost Pricing (FDC) • Ramsey Pricing (RP) • Shapley Pricing (SP) • A Simulated Welfare Analysis • Cross Subsidies and Welfare Loss • Using The LECOM (Local Exchange Cost Optimization Model) • The Telephone Exchange

  3. II. THE LECOM & LOCAL EXCHANGE INDUSTRY • Three main facilities: • Local Loop • Switching • Interoffice Trunking Trunk Private Local Loop • Four Products: • Local Exchange (1) • Toll Exchange (2) • Local Private Line (3) • Toll Private Line(4) Serving Areas

  4. City Typology Three prototypical cities 122,000 customers 179,000 customers 344,000 customers. LECOM Flow Diagram

  5. III. PRICING SCHEMES Allocated Fraction of Common Facility Fully Distributed Pricing Ramsey Pricing: Assumed LR Elasticity and * Cross-Elasticity = 0 Shapley Pricing:

  6. IV. Simulation Results and Welfare Analysis

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  10. V. Conclusion • Performing the exercise: • The overall best performer in terms of subsidy-free pricing is the Shapley approach. (lacking in terms of welfare loss) • The welfare loss minimizers are the Ramsey pricing (but poorly in terms of subsidies). • FDC prices far from flawless in terms of welfare loss and below the MC. • MC pricing does not satisfy revenue requirement (needs subsidy to BE). • Employing the LECOM telecommunications simulation software makes possible the computation and analysis of previously unavailable pricing approaches. • This fact underscores the need for more widespread use of simulation models like LECOM and their improvement.

  11. TERIMA KASIH 谢谢你 СПАСИБО शुक्रिया THANK YOU An equal opportunity/affirmative action university encouraging diversity.

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