The Flow Through of Cost Changes in Competitive Telecommunications: Theory and Evidence

20 Pages Posted: 9 Sep 2010

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

Carter Hill

Louisiana State University, Baton Rouge - Department of Economics

Richard Saba

Auburn University - Department of Economics

Date Written: September 9, 2010

Abstract

Flow through refers to the effect of a change in incremental production costs on the prices of goods or services, and is a topic of great interest to regulators and others. This article provides a framework for both analyzing flow through, and for evaluating whether or not flow through, properly defined, occurs in the long distance telecommunications industry. We focus on the effects of changes in switched access charges on domestic long distance prices for the largest U.S. long distance carriers in the late 1990s. Utilizing a double bootstrap technique uniquely suited to this problem, we find flow through occurred over the sample period. The technique illustrated here may find useful applications in other regulated sectors.

Keywords: Flow Through, Competition, Telecommunications, Cost Changes, Long Distance

JEL Classification: L96

Suggested Citation

Beard, Thomas Randolph and Ford, George S. and Hill, R. Carter and Saba, Richard, The Flow Through of Cost Changes in Competitive Telecommunications: Theory and Evidence (September 9, 2010). Empirical Economics, Vol. 30, pp. 555-573, 2005. Available at SSRN: https://ssrn.com/abstract=1674698

Thomas Randolph Beard

Auburn University - Department of Economics ( email )

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

George S. Ford (Contact Author)

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

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

R. Carter Hill

Louisiana State University, Baton Rouge - Department of Economics ( email )

Department of economics
Baton Rouge, LA 70803-6308
United States

Richard Saba

Auburn University - Department of Economics ( email )

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

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