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Subsidies and distorted markets: Do telecom subsidies affect competition?

Author

Listed:
  • Eric Chiang

    () (Department of Economics, College of Business, Florida Atlantic University)

  • Janice Hauge

    () (University of North Texas)

  • Mark Jamison

    () (University of Florida)

Abstract

There is general concern that producer subsidies distort competition. We examine a telecommunications subsidy system that transfers money from low cost regions to high cost regions of the U.S. Even though the system is designed to be competitively neutral, we find evidence that the system, combined with carrier of last resort policies, promotes cream skimming by entrants in low cost areas and deters entry in high cost areas, where incumbents are more likely than entrants to receive subsidies. We are unable to rule out the possibility that state regulatory policies favor incumbents in states that are net beneficiaries of the subsidy system.

Suggested Citation

  • Eric Chiang & Janice Hauge & Mark Jamison, 2007. "Subsidies and distorted markets: Do telecom subsidies affect competition?," Working Papers 07002, Department of Economics, College of Business, Florida Atlantic University.
  • Handle: RePEc:fal:wpaper:07002
    as

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    File URL: http://www.ericchiang.org/files/Chiang_Hauge_Jamison_JRE.pdf
    File Function: First version, 2007
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    References listed on IDEAS

    as
    1. Zolnierek, James & Eisner, James & Burton, Ellen, 2001. "An Empirical Examination of Entry Patterns in Local Telephone Markets," Journal of Regulatory Economics, Springer, vol. 19(2), pages 143-159, March.
    2. Donald Alexander & Robert Feinberg, 2004. "Entry in Local Telecommunication Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(2), pages 107-127, June.
    3. Eriksson, Ross C & Kaserman, David L & Mayo, John W, 1998. "Targeted and Untargeted Subsidy Schemes: Evidence from Postdivestiture Efforts to Promote Universal Telephone Service," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 477-502, October.
    4. H. Cremer & F. Gasmi & A. Grimaud & J. J. Laffont, 2001. "Universal Service: An economic perspective," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 72(1), pages 5-43, March.
    5. Mueller, Milton, 1993. "Universal service in telephone history : A reconstruction," Telecommunications Policy, Elsevier, vol. 17(5), pages 352-369, July.
    6. Barros, Pedro P. & Seabra, M. Carmo, 1999. "Universal service: does competition help or hurt?," Information Economics and Policy, Elsevier, vol. 11(1), pages 45-60, March.
    7. Hauge, Janice A. & Jamison, Mark A. & Gentry, Richard J., 2008. "Bureaucrats as entrepreneurs: Do municipal telecommunications providers hinder private entrepreneurs," Information Economics and Policy, Elsevier, vol. 20(1), pages 89-102, March.
    8. Trevor R. Roycroft, 2005. "Empirical Analysis of Entry in the Local Exchange Market: The Case of Pacific Bell," Contemporary Economic Policy, Western Economic Association International, vol. 23(1), pages 107-115, January.
    9. Lukasz Grzybowski, 2005. "Regulation of Mobile Telephony across the European Union: An Empirical Analysis," Journal of Regulatory Economics, Springer, vol. 28(1), pages 47-67, July.
    10. Mario Denni & Harald Gruber, 2006. "The diffusion of broadband telecommunications: the role of competition," Departmental Working Papers of Economics - University 'Roma Tre' 0060, Department of Economics - University Roma Tre.
    11. Wolak, Frank A., 1996. "Can universal service survive in a competitive telecommunications environment? Evidence from the United States consumer expenditure survey," Information Economics and Policy, Elsevier, vol. 8(3), pages 163-203, September.
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    Cited by:

    1. Chiang, Eric P. & Hauge, Janice A., 2013. "The impact of non-neutral federal regulatory policy on competition," Telecommunications Policy, Elsevier, vol. 37(11), pages 1142-1149.
    2. Casasbuenas, Jaime & de Oliveira, Fernando & Riobó, Alexander, 2014. "Effective subsidies to the demand for fixed broadbandwith an increase in penetration and an undistorted competition landscape: The Colombian case," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106900, International Telecommunications Society (ITS).

    More about this item

    Keywords

    subsidies; Universal Service Fund; telecommunications; regulation;

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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