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Is the "Dominant Firm" Dominant? An Empirical Analysis of AT&T's Market Power


  • Kahai, Simran K
  • Kaserman, David L
  • Mayo, John W


In this article, we estimate the degree of market power held by AT&T in the interstate long-distance market in the postdivestiture period. Our approach makes use of the dominant firm/competitive fringe model to impose the structure needed both to obtain estimates of the relevant structural parameters and to translate these parameters into an estimate of AT&T's residual demand elasticity and associated Lerner index. Because of the continued presence of regulation and other considerations, however, a direct estimation of the residual demand elasticity is not feasible. Consequently, we take a more indirect approach that combines estimation of the elasticity of fringe firm supply, market demand estimation, and extant market share data to generate estimates of the desired elasticity. The resulting estimates strongly support the conclusion that AT&T lacks significant market power in the postdivestiture long-distance market. Copyright 1996 by the University of Chicago.

Suggested Citation

  • Kahai, Simran K & Kaserman, David L & Mayo, John W, 1996. "Is the "Dominant Firm" Dominant? An Empirical Analysis of AT&T's Market Power," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 499-517, October.
  • Handle: RePEc:ucp:jlawec:v:39:y:1996:i:2:p:499-517

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    References listed on IDEAS

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    2. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
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    4. Baker, Jonathan B. & Bresnahan, Timothy F., 1988. "Estimating the residual demand curve facing a single firm," International Journal of Industrial Organization, Elsevier, vol. 6(3), pages 283-300.
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    Cited by:

    1. Reimer, Jeffrey J. & Steigert, Kyle W., 2006. "Imperfect Competition and Strategic Trade Theory: What Have We Learned?," Working Papers 201528, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    2. Galbi, Douglas A., 2001. "Regulating prices for shifting between service providers," Information Economics and Policy, Elsevier, vol. 13(4), pages 393-410, December.
    3. Zheng, Shilin & Ward, Michael R., 2011. "The effects of market liberalization and privatization on Chinese telecommunications," China Economic Review, Elsevier, vol. 22(2), pages 210-220, June.
    4. 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.
    5. Stiegert, Kyle W. & Wang, Shinn-Shyr, 2003. "Imperfect Competition And Strategic Trade Theory: What Have We Learned," Working Papers 14589, International Agricultural Trade Research Consortium.
    6. Zhang, Qiong & Yang, Hangjun & Wang, Qiang & Zhang, Anming, 2014. "Market power and its determinants in the Chinese airline industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 64(C), pages 1-13.
    7. Patrick Massey, 2000. "Market Definition and Market Power in Competition Analysis - Some Practical Issues," The Economic and Social Review, Economic and Social Studies, vol. 31(4), pages 309-328.
    8. Cory S. Capps & David Dranove & Shane Greenstein & Mark Satterthwaite, 2001. "The Silent Majority Fallacy of the Elzinga-Hogarty Criteria: A Critique and New Approach to Analyzing Hospital Mergers," NBER Working Papers 8216, National Bureau of Economic Research, Inc.
    9. Balmer, Roberto E., 2015. "Competition and market strategies in the Swiss fixed telephony market," 26th European Regional ITS Conference, Madrid 2015 127123, International Telecommunications Society (ITS).
    10. Hamilton, Stephen F. & Stiegert, Kyle W., 2002. "An empirical test of the rent-shifting hypothesis: the case of state trading enterprises," Journal of International Economics, Elsevier, vol. 58(1), pages 135-157, October.
    11. Kondaurova, Irina & Weisman, Dennis L., 2003. "Incentives for non-price discrimination," Information Economics and Policy, Elsevier, vol. 15(2), pages 147-171, June.
    12. Elaine S. Tan, 2009. "Market structure and the coal cartel in early nineteenth-century England -super-1," Economic History Review, Economic History Society, vol. 62(2), pages 350-365, May.
    13. 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.
    14. Galbi, Douglas A., 2001. "Regulating prices for shifting between service providers," Information Economics and Policy, Elsevier, vol. 13(2), pages 181-198, June.
    15. John W. Mayo & David E. M. Sappington, 2016. "Regulation in a ‘Deregulated’ Industry: Railroads in the Post-Staggers Era," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(2), pages 203-227, September.
    16. Parsons, Steve G., 2014. "Using the Hicks formula to evaluate an estimate of the elasticity of derived demand for toll-free numbers," Telecommunications Policy, Elsevier, vol. 38(2), pages 210-215.
    17. Balmer, Roberto E., 2014. "Competition and market strategies in the Swiss fixed telephony market," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106837, International Telecommunications Society (ITS).
    18. 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.
    19. Balmer, Roberto, 2013. "Competition and Market Strategies in the Swiss Fixed Telephony Market. An estimation of Swisscom’s dynamic residual demand curve," MPRA Paper 54078, University Library of Munich, Germany.
    20. Reimer, Jeffrey J. & Stiegert, Kyle W., 2006. "Evidence on Imperfect Competition and Strategic Trade Theory," Staff Paper Series 498, University of Wisconsin, Agricultural and Applied Economics.
    21. James Alleman & Gary Madden & Scott Savage, 2003. "Dominant carrier market power in US international telephone markets," Applied Economics, Taylor & Francis Journals, vol. 35(6), pages 665-673.

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