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Nonparametric Analysis of Cost Complementarities in the Telecommunications Industry


  • Arie Beresteanu

    () (Duke University)


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.

Suggested Citation

  • Arie Beresteanu, 2005. "Nonparametric Analysis of Cost Complementarities in the Telecommunications Industry," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 870-889, Winter.
  • Handle: RePEc:rje:randje:v:36:y:2005:4:p:870-889

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    References listed on IDEAS

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    Cited by:

    1. Chavas, Jean-Paul & Kim, Kwansoo, 2010. "Economies of diversification: A generalization and decomposition of economies of scope," International Journal of Production Economics, Elsevier, vol. 126(2), pages 229-235, August.
    2. Dennis Epple & Brett Gordon & Holger Sieg, 2010. "A New Approach to Estimating the Production Function for Housing," American Economic Review, American Economic Association, vol. 100(3), pages 905-924, June.

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications


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