Subsidies and Distorted Markets: Do Telecom Subsidies Affect Competition?
Eric P. Chiang
University of Florida - Warrington College of Business Administration - Department of Economics
Janice Alane Hauge
University of North Texas
Mark A. Jamison
University of Florida - Warrington College of Business Administration, Public Utility Research Center
July 14, 2008
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.
Number of Pages in PDF File: 32
Keywords: Subsidies, Universal Service Fund, Telecommunications, Regulation
JEL Classification: L52, L96, O11working papers series
Date posted: July 14, 2008
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