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Are Unbundled and Self-supplied Telecommunications Switching Substitutes? An Empirical Study

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  • T. Randolph Beard
  • George Ford

Abstract

The Telecommunications Act of 1996 requires incumbent monopoly phone companies to lease elements of their networks to rivals. An important policy question is whether these unbundled elements are substitutes for entry modes that are more facilities-based. In this article, we estimate demand curves for unbundled elements with the goal of assessing cross-price effects between two of the more popular entry modes that differ in the mix of unbundled and self-supplied inputs. As expected, we find downward sloping demand curves for unbundled elements. We also find own-price elasticities in the elastic region of demand. What we do not find is evidence of substitution; we are able to reject the hypothesis of effective substitution between the two entry modes.

Suggested Citation

  • T. Randolph Beard & George Ford, 2005. "Are Unbundled and Self-supplied Telecommunications Switching Substitutes? An Empirical Study," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(2), pages 163-181.
    • Handle: RePEc:taf:ijecbs:v:12:y:2005:i:2:p:163-181
    DOI: 10.1080/13571510500127139
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    1. Godfrey, Leslie G & McAleer, Michael & McKenzie, Colin R, 1988. "Variable Addition and LaGrange Multiplier Tests for Linear and Logarithmic Regression Models," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 492-503, August.
    2. George Ford & John Jackson, 2004. "Competition and investment in telecommunications," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 32(1), pages 71-71, March.
    3. Robert Ekelund & George Ford, 2002. "Preliminary evidence on unbundled elements demand in local telephony," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(4), pages 443-443, December.
    4. Beierlein, James G & Dunn, James W & McConnon, James C, Jr, 1981. "The Demand for Electricity and Natural Gas in the Northeastern United States," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 403-408, August.
    5. Beard, T. Randolph & Ford, George S. & Koutsky, Thomas M., 2005. "Mandated access and the make-or-buy decision: the case of local telecommunications competition," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 28-47, February.
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    Cited by:

    1. Ford, George S., 2007. "Does a municipal electric's supply of communications crowd out private communications investment? An empirical study," Energy Economics, Elsevier, vol. 29(3), pages 467-478, May.

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    More about this item

    Keywords

    Telecommunications; Regulation; Utilities; Policy; JEL Classifications: L9; L51; L96; L98;
    All these keywords.

    JEL classification:

    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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