TARIFICATION, DISCRIMINATION AND BYPASS

This paper illustrates on an example the optimal (non-linear) pricing policy by a monopolistic operator of a local telecommunications networ k facing competition in the market for access to long distance carrier s (bypass). We start by providing a brief overview of the literature o n non-linear pricing and on bypass. As a benchmark, we consider a mono poly facing no threat of competition and having access to two distinct technologies : the network technology and the bypass technology, whic h is more efficient for reaching large individual customers. We then s tudy competition between bypassors and the original network operator: We characterize the optimal tariff, analyze the resulting allocation a nd provide comparative statics.