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

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

Abstract

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
    DOI: 10.1086/467357
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    References listed on IDEAS

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    3. Gatto, Joseph P. & Langin-Hooper, Jerry & Robinson, Paul B. & Tyan, Holly, 1988. "Interstate switched access demand analysis," Information Economics and Policy, Elsevier, vol. 3(4), pages 333-358.
    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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