Quantifying the Benefits of Entry into Local Phone Service
AbstractIn this paper, we evaluate the consumer welfare effects of entry into residential local phone service in New York State. Residential local phone service competition was an important goal of the 1996 Telecommunications Act. We provide a detailed evaluation of its effects on consumer welfare using household-level data on service choices from the third quarter of 1999 to the first quarter of 2003. Our results indicate that as a result of entry households that subscribe to one of the entrants' services gain on average an equivalent of $2.33 per month in overall welfare from local telecommunications services, or 6.2% of the households' average bill. Averaged across all households including those that remain with the incumbent, households gain the equivalent of $0.83 per month, although benefits vary dramatically across households. Since residential local phone service is sold under a menu of nonlinear tariffs, we develop a method for estimating a mixed discrete/continuous demand model. The econometric model incorporates the simultaneity of the discrete plan and continuous consumption choices by consumers. We allow for flat-rate plans, bundling of services, and unobservable firm quality. Taking advantage of the detailed nature of the data, we decompose the households' overall gains from entry and find that benefits due to firm differentiation and new plan introductions exceed those from price effects.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 07-38.
Length: 49 pages
Date of creation: Oct 2007
Date of revision: Oct 2007
Contact details of provider:
Web page: http://www.NETinst.org/
Entry; Nonlinear Pricing; Telecommunications; Discrete/Continuous Demand;
Other versions of this item:
- Nicholas Economides & Katja Seim & V. Brian Viard, 2008. "Quantifying the benefits of entry into local phone service," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 699-730.
- Nicholas Economides & Joacim Tag, 2007. "Net Neutrality on the Internet: A Two-sided Market Analysis," Working Papers 07-27, New York University, Leonard N. Stern School of Business, Department of Economics.
- Nicholas Economides & V. Brian Viard & Katja Seim, 2005. "Quantifying the Benefits of Entry into Local Phone Service," Working Papers 05-08, NET Institute, revised Nov 2005.
- Nicholas Economides & Katja Seim & V. Brian Viard, 2005. "Quantifying the Benefits of Entry into Local Phone Service," Working Papers 05-17, New York University, Leonard N. Stern School of Business, Department of Economics.
- Nicholas Economides & V. Brian Viard & Katja Seim, 2007. "Quantifying the Benefits of Entry into Local Phone Service," Working Papers 07-48, NET Institute, revised Dec 2007.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-27 (All new papers)
- NEP-COM-2007-10-27 (Industrial Competition)
- NEP-LAW-2007-10-27 (Law & Economics)
- NEP-MIC-2007-10-27 (Microeconomics)
- NEP-URE-2007-10-27 (Urban & Real Estate Economics)
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