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Rejoinder---Natural Monopoly and the Bell System: Response to Charnes, Cooper and Sueyoshi


  • David S. Evans

    (Department of Economics, Fordham University, Bronx, New York 10458)

  • James J. Heckman

    (Department of Economics, University of Chicago, Chicago, Illinois 60637)


Our study of the Bell System cost function shows that it is possible to reject the hypothesis that AT&T was a natural monopoly. Our study is based on a regression analysis of a translog cost function estimated on 1947--1977 data. Charnes, Cooper, and Sueyoshi (Charnes, A., W. W. Cooper, T. Sueyoshi. 1988. A goal programming/constrained regression review of the bell system breakup. Management Sci. 34 1--26.) claim that they reverse our conclusion when they use goal programming estimators of a translog cost function estimated on exactly the same data that we use. This claim is false. There is no basis for comparing our estimates with their estimates because they, in fact, use different data than we use and estimate a different cost function than we estimate. Moreover, when goal programming estimates and regression estimates based on the same data and similar cost function specifications are compared, they yield similar estimates and produce the same inference about natural monopoly.

Suggested Citation

  • David S. Evans & James J. Heckman, 1988. "Rejoinder---Natural Monopoly and the Bell System: Response to Charnes, Cooper and Sueyoshi," Management Science, INFORMS, vol. 34(1), pages 27-38, January.
  • Handle: RePEc:inm:ormnsc:v:34:y:1988:i:1:p:27-38
    DOI: 10.1287/mnsc.34.1.27

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    1. Park, Sun-Young & Lee, Kyoung-Sil & Yoo, Seung-Hoon, 2016. "Economies of scale in the Korean district heating system: A variable cost function approach," Energy Policy, Elsevier, vol. 88(C), pages 197-203.
    2. Maher, Maria E., 1999. "Access costs and entry in the local telecommunications network: a case for de-averaged rates," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 593-609, May.
    3. Harry Bloch & Gary Madden & Grant Coble‐Neal & Scott J. Savage, 2001. "The Cost Structure of Australian Telecommunications," The Economic Record, The Economic Society of Australia, vol. 77(239), pages 338-350, December.
    4. M. Ishaq Nadiri & Banani Nandi, 1996. "The Changing Structure of Cost and Demand for the U.S. Telecommunications Industry," NBER Working Papers 5820, National Bureau of Economic Research, Inc.
    5. Brockett, Patrick L. & Cooper, W.W. & Golden, Linda L. & Kumbhakar, Subal C. & Kwinn Jr., Michael J. & Layton, Brian & Parker, Barnett R., 2008. "Estimating elasticities with frontier and other regressions in evaluating two advertising strategies for US Army recruiting," Socio-Economic Planning Sciences, Elsevier, vol. 42(1), pages 1-17, March.
    6. Byoung-Kuk Ju & Seung-Hoon Yoo & Chulwoo Baek, 2022. "Economies of Scale in City Gas Sector in Seoul, South Korea: Evidence from an Empirical Investigation," Sustainability, MDPI, vol. 14(9), pages 1-14, April.
    7. Dan Horsky & Paul Nelson, 2006. "Testing the Statistical Significance of Linear Programming Estimators," Management Science, INFORMS, vol. 52(1), pages 128-135, January.
    8. Jeong-Joon Yu & Seung-Hoon Yoo & Chulwoo Baek, 2019. "Economies of Scale in the South Korean Natural Gas Industry," Energies, MDPI, vol. 12(8), pages 1-10, April.
    9. Fadzlan Sufian & Muzafar Shah Habibullah, 2010. "Financial Disruptions and the Evolution of Malaysian Banking Sector’s Efficiency: A Non-Stochastic Frontier Approach," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 166-186.
    10. Hsihui Chang & Raj Mashruwala, 2006. "Was the bell system a natural monopoly? An application of data envelopment analysis," Annals of Operations Research, Springer, vol. 145(1), pages 251-263, July.
    11. Nadiri, M. Ishaq & Nandi, Banani, 1997. "The changing structure of cost and demand for the U.S. telecommunications industry," Information Economics and Policy, Elsevier, vol. 9(4), pages 319-347, December.
    12. Fadzlan Sufian & Muzafar Shah Habibullah, 2012. "Developments in the efficiency of the Malaysian banking sector: the impacts of financial disruptions and exchange rate regimes," Progress in Development Studies, , vol. 12(1), pages 19-46, January.
    13. Das, Nibedita, 2000. "Technology, efficiency and sustainability of competition in the Indian telecommunications sector," Information Economics and Policy, Elsevier, vol. 12(2), pages 133-154, June.
    14. Fadzlan Sufian, 2016. "Determinants of Efficiency in the Malaysian Banking Sector: Evidence from Semi-parametric Data Envelopment Analysis Method," Studies in Microeconomics, , vol. 4(2), pages 151-172, December.
    15. Christodoulopoulos, Th., 1995. "Telecommunications in Greece: A study of production structure and natural monopoly issue," International Journal of Production Economics, Elsevier, vol. 38(2-3), pages 147-157, March.

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