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The Changing Structure of Cost and Demand for the U.S. Telecommunications Industry

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  • M. Ishaq Nadiri
  • Banani Nandi
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    Abstract

    This paper formulates a multiproduct structural model to examine the evolution of the structure of production and demand and the dynamic interaction between the two in the context of the U.S. telecommunications industry over an extended period, from 1935 to 1987. We estimate the degree of scale economies, cost elasticities, input price elasticities and the determinants of output demand. The contribution of the quasi-fixed inputs, such as R&D and physical capital, in the evolution of this industry are examined. Using our analytical framework and a long sample period, we examine a number of important issues such as the stability of the cost and demand structure over time, the changing characteristics of demand for local and toll services and the variation of price-cost margin over time under different economic conditions, market structures and regulatory environments. Use of this approach makes it possible to analyze the effects of the 1984 divestiture of the Bell System on the cost structure, employment and capital formation of the telecommunications industry in the U.S.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5820.

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    Date of creation: Nov 1996
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    Handle: RePEc:nbr:nberwo:5820

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    1. Schankerman, Mark & Nadiri, M. Ishaq, 1986. "A test of static equilibrium models and rates of return to quasi-fixed factors, with an application to the Bell system," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 97-118.
    2. B.E. Davis & G.J. Caccappolo & M.A. Chaudry, 1973. "An Econometric Planning Model for American Telephone and Telegraph Company," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 29-56, Spring.
    3. Bernstein, Jeffrey I, 1989. "An Examination of the Equilibrium Specification and Structure of Production for Canadian Telecommunications," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(3), pages 265-82, July-Sept.
    4. Evans, David S & Heckman, James J, 1984. "A Test for Subadditivity of the Cost Function with an Application to the Bell System," American Economic Review, American Economic Association, vol. 74(4), pages 615-23, September.
    5. Diewert, W.E. & Wales, T.J., 1991. "Multiproduct cost Functions and Subadditivity Tests : A Critique of the Evans and Heckman Research on the U.S. Bell System," UBC Departmental Archives 91-21, UBC Department of Economics.
    6. Jeffrey I. Bernstein & M. Ishaq Nadiri, 1991. "Product Demand, Cost of Production, Spillovers, and the Social Rate of Return to R&D," NBER Working Papers 3625, National Bureau of Economic Research, Inc.
    7. Kenneth E. Train & Daniel L. McFadden & Moshe Ben-Akiva, 1987. "The Demand for Local Telephone Service: A Fully Discrete Model of Residential Calling Patterns and Service Choices," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 109-123, Spring.
    8. Bernstein, J.I. & Nadiri, M.I., 1988. "Rates Of Return On Physical And R&D Capital And Structure Of The Production Process: Cross Section And Time Series Evidence," Working Papers 88-09, C.V. Starr Center for Applied Economics, New York University.
    9. Jeffrey I. Bernstein & Pierre A. Mohnen, 1991. "Price-Cost Margins, Exports and Productivity Growth: With an Application to Canadian Industries," NBER Working Papers 3584, National Bureau of Economic Research, Inc.
    10. Catherine J. Morrison, 1990. "Market Power, Economic Profitability and Productivity Growth Measurement: An Integrated Structural Approach," NBER Working Papers 3355, National Bureau of Economic Research, Inc.
    11. M. Ishaq Nadiri & Theofanis P. Mamuneas, 1994. "Infrastructure and Public R&D Investments, and the Growth of Factor Productivity in US Manufacturing Industries," NBER Working Papers 4845, National Bureau of Economic Research, Inc.
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