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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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slide1

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
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
ii the lecom local exchange industry
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

slide4

City Typology

Three prototypical cities

122,000 customers

179,000 customers

344,000 customers.

LECOM Flow Diagram

iii pricing schemes
III. PRICING SCHEMES

Allocated Fraction of Common Facility

Fully Distributed Pricing

Ramsey Pricing:

Assumed LR Elasticity

and

* Cross-Elasticity = 0

Shapley Pricing:

v conclusion
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.
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TERIMA KASIH

谢谢你

СПАСИБО

शुक्रिया

THANK YOU

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