Market Definition and the Economic Effects of Special Access Price Regulation

Phoenix Center Policy Paper No. 37

31 Pages Posted: 19 Nov 2009

See all articles by Thomas Randolph Beard

Thomas Randolph Beard

Auburn University - Department of Economics

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Date Written: October 2009

Abstract

Market definition is an essential ingredient to competitive and regulatory analysis. Yet, there is significant disparity regarding the definition of the relevant geographic market for high-capacity circuits, commonly referred to as Special Access services. Given the present debate over expanding price regulation in this sector, the importance of market definition on the expected economic effects of regulation is worth evaluating. In this paper, we demonstrate that if geographic markets are “location specific” and supplied by a monopolist as the proponents of regulation claim, then price regulation reduces economic welfare in all instances. That is, even with monopoly supply, regulation offers no improvement in economic welfare, meaning the debates over the extent of competition and profit margins in such markets are irrelevant. The effect of regulation is mostly to transfer profits from sellers to buyers, so the debate appears to be largely a quibble over rents. That said, every $1 of transfer costs more than $1 to society, so regulation reduces welfare. This analysis demonstrates that the present case for regulating high-capacity services is woefully inadequate and poorly conceived.

Keywords: Special Access, bilateral monopoly, market definition, Federal Communications Commission

JEL Classification: D21, D23, D42, K23, L12, L3, L14, L16, L23, L51, L96, O38

Suggested Citation

Beard, Thomas Randolph and Ford, George S. and Spiwak, Lawrence J., Market Definition and the Economic Effects of Special Access Price Regulation (October 2009). Phoenix Center Policy Paper No. 37. Available at SSRN: https://ssrn.com/abstract=1508483 or http://dx.doi.org/10.2139/ssrn.1508483

Thomas Randolph Beard

Auburn University - Department of Economics ( email )

415 W. Magnolia
Auburn, AL 36849-5242
United States

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

Lawrence J. Spiwak (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States
202-274-0235 (Phone)
202-318-4909 (Fax)

HOME PAGE: http://www.phoenix-center.org

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