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The Effects of International Simple Resale on Prices in International Telecommunications Markets

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Abstract

This paper empirically investigates the effect of international simple resale (ISR) authorization on the prices for international message telephone service (IMTS). We compile a firm-level panel data set for over 200 United States-foreign country bilateral markets from 1995 to 2004. These data provide detailed information on prices, variable costs, fixed costs and market shares for 75 firms for each bilateral market, as well as the timing of ISR authorization by the Federal Communications Commission for each bilateral market. Estimates from a difference-in-differences model show that ISR authorization, and the associated lowering of barriers to entry, almost always results in lower prices for all markets. Additionally, we find evidence that ISR authorization alters the relationship between market concentration and price. Prior to ISR authorization more concentrated markets have higher prices. ISR authorization dampens this effect and in some cases reverses the relationship so that market concentration is negatively correlated with IMTS prices set by incumbent firms.

Suggested Citation

  • Jason Pearcy & Scott J. Savage, 2009. "The Effects of International Simple Resale on Prices in International Telecommunications Markets," Working Papers 09-19, NET Institute, revised Sep 2009.
  • Handle: RePEc:net:wpaper:0919
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    File URL: http://www.netinst.org/Pearcy_Savage_09-19.pdf
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    References listed on IDEAS

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    1. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, Elsevier.
    2. Sean Ennis, 2006. "Competition and Price Dispersion in International Long-distance Calling," Journal of Regulatory Economics, Springer, vol. 29(3), pages 303-317, May.
    3. Gary Madden & Scott J. Savage, 2000. "Market Structure, Competition, and Pricing in United States International Telephone Service Markets," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 291-296, May.
    4. Madden, Gary & Savage, Scott J. & Tipping, Craig, 2001. "Understanding European Union international message telephone services demand," Information Economics and Policy, Elsevier, vol. 13(2), pages 127-136, June.
    5. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
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    More about this item

    Keywords

    barriers to entry; competition; international message telephone prices; international simple resale; prices;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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