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Quantifying the Benefits of Entry into Local Phone Service

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Author Info

  • Nicholas Economides

    ()
    (Stern School of Business, NYU)

  • V. Brian Viard

    ()
    (Graduate School of Business, Stanford University)

  • Katja Seim

    ()
    (Stanford University)

Abstract

In 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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File URL: http://www.stern.nyu.edu/networks/Local_Telecommunications.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 07-38.

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Length: 49 pages
Date of creation: Oct 2007
Date of revision: Oct 2007
Handle: RePEc:net:wpaper:0738

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Web page: http://www.NETinst.org/

Related research

Keywords: Entry; Nonlinear Pricing; Telecommunications; Discrete/Continuous Demand;

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References

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  6. Shane Greenstein & Michael Mazzeo, 2006. "THE ROLE OF DIFFERENTIATION STRATEGY IN LOCAL TELECOMMUNICATION ENTRY AND MARKET EVOLUTION: 1999-2002 -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(3), pages 323-350, 09.
  7. 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.
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Citations

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Cited by:
  1. Huang, Ching-I, 2008. "Intra-Household Effects on Demand for Telephone Service: Empirical Evidence," MPRA Paper 6813, University Library of Munich, Germany.
  2. Ching-I Huang, 2008. "Estimating demand for cellular phone service under nonlinear pricing," Quantitative Marketing and Economics, Springer, vol. 6(4), pages 371-413, December.
  3. Jiyoung Kim, 2006. "A Structural Analysis for Consumer's Dynamic Switching Decision in the Cellular Service Industry," Working Papers 06-24, NET Institute, revised Oct 2006.
  4. Ketcham, Jonathan D. & Lucarelli, Claudio & Miravete, Eugenio J & Roebuck, M Christopher, 2011. "Sinking, Swimming, or Learning to Swim in Medicare Part D," CEPR Discussion Papers 8585, C.E.P.R. Discussion Papers.
  5. Ingo Vogelsang, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, Lucius & Lucius, vol. 64(3), pages 193-269.
  6. Anja Lambrecht & Katja Seim & Naufel Vilcassim & Amar Cheema & Yuxin Chen & Gregory Crawford & Kartik Hosanagar & Raghuram Iyengar & Oded Koenigsberg & Robin Lee & Eugenio Miravete & Ozge Sahin, 2012. "Price discrimination in service industries," Marketing Letters, Springer, vol. 23(2), pages 423-438, June.
  7. Pérez Montes, Carlos, 2013. "Regulatory bias in the price structure of local telephone service," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 462-476.
  8. Miravete, Eugenio J, 2007. "Competing with Menus of Tariff Options," CEPR Discussion Papers 6279, C.E.P.R. Discussion Papers.
  9. Jean-Pierre Dubé & K. Sudhir & Andrew Ching & Gregory Crawford & Michaela Draganska & Jeremy Fox & Wesley Hartmann & Günter Hitsch & V. Viard & Miguel Villas-Boas & Naufel Vilcassim, 2005. "Recent Advances in Structural Econometric Modeling: Dynamics, Product Positioning and Entry," Marketing Letters, Springer, vol. 16(3), pages 209-224, December.
  10. Ingo Vogelsang, 2014. "Will the U.S. and EU Telecommunications Policies Converge? A Survey," CESifo Working Paper Series 4843, CESifo Group Munich.

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