Eric Chiang () (Department of Economics, College of Business, Florida Atlantic University) Janice Hauge () (University of North Texas) Mark Jamison () (University of Florida)
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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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Paper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number
07002.
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