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Entry into Regulated Monopoly Markets: The Development of a Competitive Fringe in the Local Telephone Industry

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  • Abel, Jaison R

Abstract

Incumbent firms operating in today's local telephone industry are beginning to face competition from new entrants. Using the dominant-firm/competitive-fringe framework and a recently constructed panel data set of local telephone markets, this paper provides an empirical analysis of the competitive transition underway in the U.S. local telephone industry. Of particular interest is the differential impact of economic regulation on the development of fringe competition in local telephone markets. Empirical results reveal that local telephone markets with price cap regulation have witnessed less net fringe entry and subsequently contain smaller competitive fringes during the time period studied. These findings imply that the widespread adoption of price cap regulation by state public utility commissions has contributed to the slow development of local telephone competition. To reconcile this surprising conclusion, a political economy explanation that details how state regulators have benefited from this regulatory decision is put forth and supported with empirical evidence. Copyright 2002 by the University of Chicago.

Suggested Citation

  • Abel, Jaison R, 2002. "Entry into Regulated Monopoly Markets: The Development of a Competitive Fringe in the Local Telephone Industry," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 289-316, October.
  • Handle: RePEc:ucp:jlawec:v:45:y:2002:i:2:p:289-316
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    File URL: http://dx.doi.org/10.1086/340701
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    Cited by:

    1. Gregory L. Rosston & Scott J. Savage & Bradley S. Wimmer, 2008. "The Effect of Private Interests on Regulated Retail and Wholesale Prices," Journal of Law and Economics, University of Chicago Press, vol. 51(3), pages 479-501, August.
    2. Jeffrey Prince & Shane Greenstein, 2017. "Measuring Consumer Preferences for Video Content Provision via Cord-Cutting Behavior," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(2), pages 293-317, June.
    3. Loomis, David G. & Swann, Christopher M., 2005. "Intermodal competition in local telecommunications markets," Information Economics and Policy, Elsevier, vol. 17(1), pages 97-113, January.
    4. Burnstein, David E, 2005. "An Examination of Market Power in the Intrastate Long-Distance Telephone Service Markets: Evidence from a Natural Experiment," Journal of Law and Economics, University of Chicago Press, vol. 48(1), pages 149-171, April.
    5. T. Randolph Beard, Jeffrey T. Macher, John W. Mayo, . "'Can you Hear Me Now?' Exit, Voice and Loyalty Under Increasing Competition," Journal of Law and Economics, University of Chicago Press, vol. 58(3).
    6. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401009, EconWPA.
    7. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    8. Dino Falaschetti, 2003. "Voter Turnout, Regulatory Commitment, and Capital Accumulation: Evidence from the US Telecommunications Sector," Microeconomics 0311002, EconWPA.
    9. Shane Greenstein & Michael Mazzeo, 2003. "Differentiation Strategy and Market Deregulation: Local Telecommunication Entry in the Late 1990s," NBER Working Papers 9761, National Bureau of Economic Research, Inc.
    10. repec:oup:jcomle:v:4:y:2008:i:4:p:1065-1096. is not listed on IDEAS
    11. Gregory L. Rosston & Scott J. Savage & Bradley S. Wimmer, 2006. "The Impact of "Deregulation" on Regulator Behavior: An Empirical Analysis of the Telecommunications Act of 1996," Discussion Papers 05-006, Stanford Institute for Economic Policy Research.
    12. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 3851, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    13. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401006, EconWPA.

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