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Product Substitutability and Competition in Long-Distance Telecommunications

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  • Ward, Michael R

Abstract

I estimate the degree of substitutability between U.S. long-distance telecommunications carriers. AT&T's Marshallian demand elasticity for basic long-distance service is estimated to be about -10. With various assumptions regarding producer behavior, a range of residual demand elasticities, price-cost margins, and the dead-weight losses are calculated. I argue that producer behavior is such that the dead-weight loss to supracompetitive pricing is likely to be about 1.5% of industry revenues. The results bear on whether AT&T's deregulation was merited and whether to allow the Bell Operating Companies to enter the long-distance market. Copyright 1999 by Oxford University Press.

Suggested Citation

  • Ward, Michael R, 1999. "Product Substitutability and Competition in Long-Distance Telecommunications," Economic Inquiry, Western Economic Association International, vol. 37(4), pages 657-677, October.
    • Handle: RePEc:oup:ecinqu:v:37:y:1999:i:4:p:657-77
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    Cited by:

    1. A H L Lau & H-S Lau, 2005. "A critical comparison of the various plausible inter-echelon gaming processes in supply chain models," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(11), pages 1273-1286, November.
    2. Kondaurova, Irina & Weisman, Dennis L., 2003. "Incentives for non-price discrimination," Information Economics and Policy, Elsevier, vol. 15(2), pages 147-171, June.
    3. Lau, Amy Hing Ling & Lau, Hon-Shiang, 2005. "Some two-echelon supply-chain games: Improving from deterministic-symmetric-information to stochastic-asymmetric-information models," European Journal of Operational Research, Elsevier, vol. 161(1), pages 203-223, February.
    4. Zheng, Shilin & Ward, Michael R., 2011. "The effects of market liberalization and privatization on Chinese telecommunications," China Economic Review, Elsevier, vol. 22(2), pages 210-220, June.
    5. Lau, Amy Hing Ling & Lau, Hon-Shiang, 2003. "Effects of a demand-curve's shape on the optimal solutions of a multi-echelon inventory/pricing model," European Journal of Operational Research, Elsevier, vol. 147(3), pages 530-548, June.
    6. Krouse, Clement G & Park, Jongsur, 2003. "Competition in the Interexchange Telecommunication Market," Journal of Law and Economics, University of Chicago Press, vol. 46(1), pages 85-101, April.
    7. 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.

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