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Dominant Firm Pricing with Competitive Entry and Regulation: The Case of IntraLATA Toll

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  • Blank, Larry
  • Kaserman, David L
  • Mayo, John W

Abstract

In this paper, we develop a generalized model of a dominant firm-competitive fringe industry in which products are differentiated, costs vary across suppliers, and the dominant firm is subject to alternative regulatory regimes. The model yields an equilibrium condition that can be tested empirically using data on Bell Operating Companies' pricing of intraLATA toll telephone service. Estimation of a reduced form price equation provides strong support for the theoretical model. Of particular interest, the results suggest that dominant firm (Bell Operating Company) toll prices are driven down by the presence of actual and potential fringe competitors (interexchange carriers) when entry is authorized by the state. Additionally, the results fail to provide evidence that the introduction of incentive regulation or price-cap regulation has reduced intraLATA toll prices. Copyright 1998 by Kluwer Academic Publishers

Suggested Citation

  • Blank, Larry & Kaserman, David L & Mayo, John W, 1998. "Dominant Firm Pricing with Competitive Entry and Regulation: The Case of IntraLATA Toll," Journal of Regulatory Economics, Springer, vol. 14(1), pages 35-53, July.
    • Handle: RePEc:kap:regeco:v:14:y:1998:i:1:p:35-53
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    Cited by:

    1. Bajo-Buenestado, Raúl, 2017. "Welfare implications of capacity payments in a price-capped electricity sector: A case study of the Texas market (ERCOT)," Energy Economics, Elsevier, vol. 64(C), pages 272-285.
    2. Abel, Jaison R, 2002. "Entry into Regulated Monopoly Markets: The Development of a Competitive Fringe in the Local Telephone Industry," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 289-316, October.
    3. Crowley, Nick & Meitzen, Mark, 2021. "Measuring the price impact of price-cap regulation among Canadian electricity distribution utilities," Utilities Policy, Elsevier, vol. 72(C).
    4. Colucci, Domenico & Doni, Nicola & Ricchiuti, Giorgio & Valori, Vincenzo, 2022. "Market dynamics with a state-owned dominant firm and a competitive fringe," Chaos, Solitons & Fractals, Elsevier, vol. 161(C).
    5. David Mandy, 2007. "When Do Input Prices Matter For Make-Or-Buy Decisions?," Working Papers 0701, Department of Economics, University of Missouri.
    6. Susanne Wied-Nebbeling, 2007. "Fringe firms: Are they better off in a heterogeneous market?," Working Paper Series in Economics 31, University of Cologne, Department of Economics.
    7. David Kaserman & John Mayo & Larry Blank & Simran Kahai, 1999. "Open Entry and Local Telephone Rates: The Economics of IntraLATA Toll Competition," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(4), pages 303-319, June.
    8. Simran Kahai & David Kaserman, 2007. "Effective regulation versus tacit collusion in the long-distance market: an empirical analysis," Journal of Regulatory Economics, Springer, vol. 32(3), pages 247-257, December.
    9. David Mandy, 2009. "Pricing inputs to induce efficient Make-or-Buy decisions," Journal of Regulatory Economics, Springer, vol. 36(1), pages 29-43, August.
    10. Gerpott, Torsten J. & Massengeil, Sven W., 2002. "Strategic determinants of reseller profitability in the US wireline telecommunications market," Information Economics and Policy, Elsevier, vol. 14(1), pages 111-131, March.
    11. Galetovic, Alexander & Hogan, William W., 2008. "Comments," LSE Research Online Documents on Economics 123320, London School of Economics and Political Science, LSE Library.

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