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Regulatory Restructuring and Incumbent Price Dynamics: The Case of U.S. Local Telephone Markets

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  • Christopher R. Knittel

    (University of California, Davis)

Abstract

Prior to the Telecommunications Act of 1996, many U.S. states restructured their regulatory framework by replacing rate-of-return regulation with competition in both the local exchange service and local long-distance markets and adopting price regulation (price caps and price freezes). Using a panel data set of incumbent firm prices for three services, I investigate whether price regulation and differences in entry conditions affect incumbent operators' rate structures. I find that competition has prompted a significant amount of rate rebalancing by reducing the amount of cross-subsidization present in local telephone markets. In addition, the added flexibility of price cap regulation speeds the rate rebalance effects of competition. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Christopher R. Knittel, 2004. "Regulatory Restructuring and Incumbent Price Dynamics: The Case of U.S. Local Telephone Markets," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 614-625, May.
    • Handle: RePEc:tpr:restat:v:86:y:2004:i:2:p:614-625
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    Cited by:

    1. Gregory L. Rosston & Scott J. Savage & Bradley S. Wimmer, 2008. "The Effect of Private Interests on Regulated Retail and Wholesale Prices," Journal of Law and Economics, University of Chicago Press, vol. 51(3), pages 479-501, August.
    2. Constant Tra, 2009. "Have Renewable Portfolio Standards Raised Electricity Rates? Evidence from U.S. Electric Utilities," Working Papers 0923, University of Nevada, Las Vegas , Department of Economics.
    3. Ackerberg, Daniel A. & DeRemer, David R. & Riordan, Michael H. & Rosston, Gregory L. & Wimmer, Bradley S., 2014. "Estimating the impact of low-income universal service programs," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 84-98.
    4. Benjamin Bridgman & Shi Qi & James Schmitz, 2006. "Does Regulation Reduce Productivity? Evidence From Regulation of the U.S. Beet-Sugar Manufacturing Industry During the Sugar Acts, 1934-74," 2006 Meeting Papers 438, Society for Economic Dynamics.
    5. Nicholas Bloom & Renata Lemos & Raffaella Sadun & John Van Reenen, 2015. "Does Management Matter in schools?," Economic Journal, Royal Economic Society, vol. 0(584), pages 647-674, May.
    6. Robert S. Pindyck, 2005. "Pricing Capital Under Mandatory Unbundling and Facilities Sharing," NBER Working Papers 11225, National Bureau of Economic Research, Inc.
    7. Gregory L. Rosston & Scott J. Savage & Bradley S. Wimmer, 2006. "The Impact of "Deregulation" on Regulator Behavior: An Empirical Analysis of the Telecommunications Act of 1996," Discussion Papers 05-006, Stanford Institute for Economic Policy Research.
    8. Eva Jansson, 0. "Deregulation, property rights, and legal system," European Journal of Law and Economics, Springer, vol. 0, pages 1-25.

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