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An Examination of Market Power in the Intrastate Long-Distance Telephone Service Markets: Evidence from a Natural Experiment

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  • Burnstein, David E

Abstract

During the preceding 2 decades, state public utility commissions have experimented extensively with regulating telecommunications carriers. More recently, many states have more or less deregulated long-distance service. This paper employs a panel data set of states to examine whether the competitive conduct of long-distance carriers was affected by these events. A methodology is developed to estimate changes in the market conduct parameter following states' decisions to price deregulate long-distance service. This effect is isolated by using a difference-in-difference estimator that compares the change in market conduct of the treatment group (states deregulated during the study period) to the change in market conduct of the control group (states deregulated throughout the study period). My hypothesis is that elimination of price regulation altered the carriers' market conduct and that this change in conduct explains, in part, the price differences in regulated and deregulated markets. The results confirm my hypothesis.

Suggested Citation

  • Burnstein, David E, 2005. "An Examination of Market Power in the Intrastate Long-Distance Telephone Service Markets: Evidence from a Natural Experiment," Journal of Law and Economics, University of Chicago Press, vol. 48(1), pages 149-171, April.
    • Handle: RePEc:ucp:jlawec:y:2005:v:48:i:1:p:149-71
    DOI: 10.1086/426880
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    1. Brigitte C. Madrian, 1994. "Employment-Based Health Insurance and Job Mobility: Is there Evidence of Job-Lock?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 27-54.
    2. MacAvoy, Paul W, 1995. "Tacit Collusion under Regulation in the Pricing of Interstate Long-Distance Telephone Services," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 147-185, Summer.
    3. Robert N. Rubinovitz, 1993. "Market Power and Price Increases for Basic Cable Service Since Deregulation," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 1-18, Spring.
    4. 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.
    5. Pablo T. Spiller & Edgardo Favaro, 1984. "The Effects of Entry Regulation on Oligopolistic Interaction: The Uruguayan Banking Sector," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 244-254, Summer.
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    Cited by:

    1. Sumit K. Majumdar, 2010. "Incentive Compatible Mechanism Design And Firm Growth: Experiences From Telecommunications Sector Regulation," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 81(3), pages 357-387, September.
    2. Majumdar, Sumit K. & Yaylacicegi, Ulku & Moussawi, Rabih, 2012. "Mergers and synergy: Lessons from contemporary telecommunications history," Telecommunications Policy, Elsevier, vol. 36(2), pages 140-154.

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