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Demand and Pricing of Telecommunications Services: Evidence and Welfare Implications

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  • Carlos Martins-Filho
  • John W. Mayo

Abstract

Although telephone pricing has received increasing attention in recent years, the geographic patterns of telephone pricing and the corresponding economic consequences of those patterns have remained perplexing to consumers and policymakers and largely unaddressed by economists. In this article we first specify a model of the demand for short (intraLATA) long distance calling. We then draw upon data made available by the recent adoption of extended area service (EAS) in four metropolitan areas to empirically measure the structure of inter-exchange telephone demand. Given these estimates, and a conceptual framework for analyzing the economic welfare effects, we were able to quantify the consumer-surplus effects of alternative pricing policies. The empirical results indicate that consumer surplus is noticeably enhanced by adopting EAS. But the net economic welfare effects are shown to be sensitive to, among other things, the level of price-cost margins prevailing prior to the implementation of EAS.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 24 (1993)
Issue (Month): 3 (Autumn)
Pages: 439-454

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Handle: RePEc:rje:randje:v:24:y:1993:i:autumn:p:439-454

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Cited by:
  1. Eric P. Chiang & Janice A. Hauge, 2007. "Funding Universal Service: The Effect of Telecommunications Subsidy Programs on Competition and Retail Prices," Working Papers, NET Institute 07-08, NET Institute, revised Aug 2007.
  2. Jean-Michel Guldmann, 1998. "Competing destinations and intervening opportunities interaction models of inter-city telecommunication flows," ERSA conference papers, European Regional Science Association ersa98p120, European Regional Science Association.
  3. Agiakloglou, Christos & Karkalakos, Sotiris, 2006. "Estimating Diffusion Rates for Telecommunications: Evidence from European Union," MPRA Paper 45788, University Library of Munich, Germany.
  4. repec:ebl:ecbull:v:12:y:2007:i:5:p:1-9 is not listed on IDEAS
  5. Martin Gaynor & Yunfeng Shi & Rahul Telang & William Vogt, 2005. "Cell Phone Demand and Consumer Learning – An Empirical Analysis," Working Papers, NET Institute 05-28, NET Institute, revised Oct 2005.
  6. Gustavo, Manfrim & Sergio, Da Silva, 2006. "Estimating demand elasticities of fixed telephony in Brazil," MPRA Paper 1978, University Library of Munich, Germany.
  7. Rahul Telang, 2004. "An Empirical Analysis of Cellular Voice and Data services," Working Papers, NET Institute 04-10, NET Institute.
  8. Agiakloglou, Christos & Karkalakos, Sotiris, 2006. "Estimating Diffusion Rates for Telecommunications: Evidence from European Union," MPRA Paper 45862, University Library of Munich, Germany.
  9. Kridel, Donald J. & Rappoport, Paul N. & Taylor, Lester D., 2002. "IntraLATA long-distance demand: carrier choice, usage demand and price elasticities," International Journal of Forecasting, Elsevier, Elsevier, vol. 18(4), pages 545-559.

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