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Tacit Collusion under Regulation in the Pricing of Interstate Long-Distance Telephone Services

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  • MacAvoy, Paul W

Abstract

Analysis of seven wholesale and retail markets for long-distance telephone services since the AT&T divestiture indicates that service provider concentration declined in the later 1980s and then stabilized in the 1990-1993 period. In addition to this stability in market shares, a number of other conditions established since 1990 have been conducive to the development of market sharing rather than significant price competition. The most important of these conditions has been the tariffing process of the Federal Communications Commission by which MCI&Sprint replicate AT&T's price announcements. As market shares stabilized and became more equal, and as regulation formalized the price-setting process, the price-cost margins of the three large carriers increased and became more nearly identical. These results are consistent not with price competition but rather with emerging tacit collusion among AT&T, MCI,&Sprint. Copyright 1995 by MIT Press.

Suggested Citation

  • MacAvoy, Paul W, 1995. "Tacit Collusion under Regulation in the Pricing of Interstate Long-Distance Telephone Services," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 147-185, Summer.
    • Handle: RePEc:bla:jemstr:v:4:y:1995:i:2:p:147-85
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    Cited by:

    1. Lawrence White, 2000. ""Propertyzing" the Electromagnetic Spectrum: Why It's Important, and How to Begin," Working Papers 00-08, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Sovinsky, Michelle & Helland, Eric, 2019. "Do Research Joint Ventures Serve a Collusive Function?," CEPR Discussion Papers 13533, C.E.P.R. Discussion Papers.
    3. Michelle S. Goeree & Eric Helland, 2009. "Do research joint ventures serve a collusive function?," IEW - Working Papers 448, Institute for Empirical Research in Economics - University of Zurich, revised Jul 2012.
    4. Economides, Nicholas, 1999. "The Telecommunications Act of 1996 and its impact1," Japan and the World Economy, Elsevier, vol. 11(4), pages 455-483, December.
    5. Sovinsky, Michelle & Eric Helland, 2013. "Do Research Joint Ventures Serve a Collusive Function?," The Warwick Economics Research Paper Series (TWERPS) 1030, University of Warwick, Department of Economics.
    6. V. Brian Viard, 2007. "Do switching costs make markets more or less competitive? The case of 800-number portability," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 146-163, March.
    7. Mixon Jr., Franklin G. & Hsing, Yu, 1997. "The determinants of market share for the 'dominant firm' in telecommunications," Information Economics and Policy, Elsevier, vol. 9(4), pages 309-318, December.
    8. Ashish Nayyar, 2004. "Entry in a Dynamic Model with Equilibrium Price Dispersion with an Application to the Market for Long‐Distance Telephone Services," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(4), pages 577-592, October.
    9. Burnstein, David E, 2005. "An Examination of Market Power in the Intrastate Long-Distance Telephone Service Markets: Evidence from a Natural Experiment," Journal of Law and Economics, University of Chicago Press, vol. 48(1), pages 149-171, April.
    10. Simran Kahai & David Kaserman, 2007. "Effective regulation versus tacit collusion in the long-distance market: an empirical analysis," Journal of Regulatory Economics, Springer, vol. 32(3), pages 247-257, December.
    11. White, Lawrence J., 2000. "US telephone deregulation: lessons to be learned, mistakes to be avoided," Japan and the World Economy, Elsevier, vol. 12(2), pages 173-183, May.
    12. Michelle Sovinsky, 2022. "Do Research Joint Ventures Serve a Collusive Function?," Journal of the European Economic Association, European Economic Association, vol. 20(1), pages 430-475.
    13. Knittel, Christopher R., 1997. "Local telephone pricing: competitive forces at work," Utilities Policy, Elsevier, vol. 6(2), pages 87-96, June.
    14. Kaserman, David L. & Mayo, John W., 1999. "Regulatory policies toward local exchange companies under emerging competition: guardrails or speed bumps on the information highway?," Information Economics and Policy, Elsevier, vol. 11(4), pages 367-388, December.
    15. Lalit Manral & Kathryn R. Harrigan, 2023. "Geographic fragmentation and declining dominance: Yet another story of AT&T’s decline in the post-divestiture era," Journal of Evolutionary Economics, Springer, vol. 33(2), pages 605-644, April.
    16. Eva Jansson, 0. "Deregulation, property rights, and legal system," European Journal of Law and Economics, Springer, vol. 0, pages 1-25.

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