The Effects of Liberalizing Price Controls on Local Telephone Service: An Empirical Analysis

Abstract:     
In recent years, twelve U.S. states have liberalized price controls on basic telephone services, and several others are considering doing so. To assess the impact of these changes, we collected and analyzed a comprehensive data set on basic telephone prices and on the specific characteristics of price regulation in 95 cities. Our analysis demonstrates that the removal of price controls on basic telephone service has, if anything, led to lower rates, indicating that competition has developed to the point where price controls are no longer necessary. Given well-documented evidence of the distortions caused by unnecessary price controls, and the benefits of liberalization for consumers in particular and economic growth overall, we conclude that states should expedite the liberalization of price controls on basic telephone service.

Number of Pages in PDF File: 59

working papers series