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Subsidies and distorted markets: Do telecom subsidies affect competition?

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Author Info

  • Eric Chiang

    ()
    (Department of Economics, College of Business, Florida Atlantic University)

  • Janice Hauge

    ()
    (University of North Texas)

  • Mark Jamison

    ()
    (University of Florida)

Abstract

There is general concern that producer subsidies distort competition. We examine a telecommunications subsidy system that transfers money from low cost regions to high cost regions of the U.S. Even though the system is designed to be competitively neutral, we find evidence that the system, combined with carrier of last resort policies, promotes cream skimming by entrants in low cost areas and deters entry in high cost areas, where incumbents are more likely than entrants to receive subsidies. We are unable to rule out the possibility that state regulatory policies favor incumbents in states that are net beneficiaries of the subsidy system.

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File URL: http://www.ericchiang.org/files/Chiang_Hauge_Jamison_JRE.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number 07002.

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Length: 37 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:fal:wpaper:07002

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Keywords: subsidies; Universal Service Fund; telecommunications; regulation;

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  1. Eriksson, Ross C & Kaserman, David L & Mayo, John W, 1998. "Targeted and Untargeted Subsidy Schemes: Evidence from Postdivestiture Efforts to Promote Universal Telephone Service," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 477-502, October.
  2. Zolnierek, James & Eisner, James & Burton, Ellen, 2001. "An Empirical Examination of Entry Patterns in Local Telephone Markets," Journal of Regulatory Economics, Springer, vol. 19(2), pages 143-59, March.
  3. H. Cremer & F. Gasmi & A. Grimaud & J. J. Laffont, 2001. "Universal Service: An economic perspective," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 72(1), pages 5-43, 03.
  4. Lukasz Grzybowski, 2005. "Regulation of Mobile Telephony across the European Union: An Empirical Analysis," Journal of Regulatory Economics, Springer, vol. 28(1), pages 47-67, 07.
  5. Mueller, Milton, 1993. "Universal service in telephone history : A reconstruction," Telecommunications Policy, Elsevier, vol. 17(5), pages 352-369, July.
  6. Barros, Pedro P. & Seabra, M. Carmo, 1999. "Universal service: does competition help or hurt?," Information Economics and Policy, Elsevier, vol. 11(1), pages 45-60, March.
  7. Hauge, Janice A. & Jamison, Mark A. & Gentry, Richard J., 2008. "Bureaucrats as entrepreneurs: Do municipal telecommunications providers hinder private entrepreneurs," Information Economics and Policy, Elsevier, vol. 20(1), pages 89-102, March.
  8. Mario Denni & Harald Gruber, 2006. "The diffusion of broadband telecommunications: the role of competition," Departmental Working Papers of Economics - University 'Roma Tre' 0060, Department of Economics - University Roma Tre.
  9. Trevor R. Roycroft, 2005. "Empirical Analysis of Entry in the Local Exchange Market: The Case of Pacific Bell," Contemporary Economic Policy, Western Economic Association International, vol. 23(1), pages 107-115, 01.
  10. Donald Alexander & Robert Feinberg, 2004. "Entry in Local Telecommunication Markets," Review of Industrial Organization, Springer, vol. 25(2), pages 107-127, 06.
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