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Demand and Pricing of Telecommunications Services: Evidence and Welfare Implications

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  • Carlos Martins-Filho
  • John W. Mayo

Abstract

Although telephone pricing has received increasing attention in recent years, the geographic patterns of telephone pricing and the corresponding economic consequences of those patterns have remained perplexing to consumers and policymakers and largely unaddressed by economists. In this article we first specify a model of the demand for short (intraLATA) long distance calling. We then draw upon data made available by the recent adoption of extended area service (EAS) in four metropolitan areas to empirically measure the structure of inter-exchange telephone demand. Given these estimates, and a conceptual framework for analyzing the economic welfare effects, we were able to quantify the consumer-surplus effects of alternative pricing policies. The empirical results indicate that consumer surplus is noticeably enhanced by adopting EAS. But the net economic welfare effects are shown to be sensitive to, among other things, the level of price-cost margins prevailing prior to the implementation of EAS.

Suggested Citation

  • Carlos Martins-Filho & John W. Mayo, 1993. "Demand and Pricing of Telecommunications Services: Evidence and Welfare Implications," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 439-454, Autumn.
  • Handle: RePEc:rje:randje:v:24:y:1993:i:autumn:p:439-454
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    Citations

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    Cited by:

    1. Martin Gaynor & Yunfeng Shi & Rahul Telang & William Vogt, 2005. "Cell Phone Demand and Consumer Learning – An Empirical Analysis," Working Papers 05-28, NET Institute, revised Oct 2005.
    2. Rahul Telang, 2004. "An Empirical Analysis of Cellular Voice and Data services," Working Papers 04-10, NET Institute.
    3. Sergio Da Silva & Gustavo Manfrim, 2007. "Estimating demand elasticities of fixed telephony in Brazil," Economics Bulletin, AccessEcon, vol. 12(5), pages 1-9.
    4. Eriksson, Ross C & Kaserman, David L & Mayo, John W, 1998. "Targeted and Untargeted Subsidy Schemes: Evidence from Postdivestiture Efforts to Promote Universal Telephone Service," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 477-502, October.
    5. Jean-Michel Guldmann, 1998. "Competing destinations and intervening opportunities interaction models of inter-city telecommunication flows," ERSA conference papers ersa98p120, European Regional Science Association.
    6. Kridel, Donald J. & Rappoport, Paul N. & Taylor, Lester D., 2002. "IntraLATA long-distance demand: carrier choice, usage demand and price elasticities," International Journal of Forecasting, Elsevier, vol. 18(4), pages 545-559.
    7. Eric P. Chiang & Janice A. Hauge, 2007. "Funding Universal Service: The Effect of Telecommunications Subsidy Programs on Competition and Retail Prices," Working Papers 07-08, NET Institute, revised Aug 2007.
    8. repec:ebl:ecbull:v:12:y:2007:i:5:p:1-9 is not listed on IDEAS
    9. Agiakloglou, Christos & Karkalakos, Sotiris, 2006. "Estimating Diffusion Rates for Telecommunications: Evidence from European Union," MPRA Paper 45862, University Library of Munich, Germany.
    10. Agiakloglou, Christos & Karkalakos, Sotiris, 2006. "Estimating Diffusion Rates for Telecommunications: Evidence from European Union," MPRA Paper 45788, University Library of Munich, Germany.

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