Nonparametric Analysis of Cost Complementarities in the Telecommunications Industry
Using data on local exchange carriers (LECs), I estimate the total cost function of LECs operating between 1988 and 1995. First, I show that cost complementarities can be nonparametrically identified in many situations where economies of scope and subadditivity—the focus of previous empirical research—cannot be identified. Next, I implement a feasible nonparametric estimation model restricting the cost function to satisfy properties required by economic theory. The results support the assumption of cost complementarities in the production of local and toll calls. The degree of complementarity is computed and shown to be larger for small companies.
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Volume (Year): 36 (2005)
Issue (Month): 4 (Winter)
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