We analyze how termination charges affect retail prices when taking into account that receivers derive some utility from a call and when retail may charge consumers for receiving calls. A novel feature of our paper is that we consider passive self-fulfilling expectations and do not allow for negative reception charges. Firms only charge for receiving calls when the termination charge is below cost. We reconfirm the finding of profit neutrality when firms cannot use termination-based price discrimination. When firms can use termination-based price discrimination profits do depend on the termination charge. When the call externality is strong, firms prefer a below cost termination charge and will use RPP. When the call externality is weak, firms prefer a termination charge above cost. The termination charge that maximizes total welfare is below cost and would induce an RPP regime.

JEL classification: D43; K23; L51; L96.-- Trabajo presentado a: "2nd Workshop on the Economics of ICTs" celebrado en Portugal en 2011; "European Association for Research in Industrial Economics 38th Annual Conference" celebrada en Suecia en 2011; "European Economic Association and Econometric Society 2011 Parallel Meetings" celebrada en Noruega en 2011.

Financial support from the Net Institute, http://www.Netinst.org is gratefully acknowledged.

Peer Reviewed