Within‐Firm and Cross‐Firm Interconnection Strategies in Asymmetric Networks

ABSTRACT This paper develops a unified framework for analyzing various interconnection regimes in two dimensions: compatibility between networks managed by the same firm (within‐firm interconnection) and compatibility between networks of different firms (cross‐firm interconnection). Our study examines a duopoly market in which a dominant firm operates two networks and a competitor offers a standalone network. We find that the strength of economies of scale is critical in determining firm choices of interconnection regimes. The welfare implications of interconnection regimes are also investigated. In particular, policy interventions aimed at promoting cross‐firm interconnection may result in socially undesirable outcomes.