Regulated Prices with Competition and Heterogeneous Consumers

43 Pages Posted: 30 Jul 2012

See all articles by Gregory L. Rosston

Gregory L. Rosston

Stanford Institute for Economic Policy Research

Scott Savage

University of Colorado at Boulder - Department of Economics

Bradley S. Wimmer

University of Nevada, Las Vegas - College of Business - Department of Economics

Date Written: August 15, 2005

Abstract

This paper studies how the political influence of consumer groups and firms affects the behavior of state regulators and in turn the effectiveness of federal policies. We employ a unique granular data set for U.S. local telephone markets to examine empirically differences in state and intrastate characteristics that identify regulators’ pricing decisions with competition and heterogeneous consumers. Results show that state regulators take into account the overall structure of prices within a state when setting prices for a particular service in specific regions. We find that state regulators consider the direct and opportunity cost of service provision when setting prices, and follow a “share the pain” method of dealing with higher rural costs by increasing all prices across the state. In addition, they use federal universal service subsidies to reduce urban business prices rather than to reduce prices in the rural wire centers to which they are targeted. Removal of local entry barriers and incumbent line-of-business restrictions is associated with a 20 percent decrease in urban business prices and almost a six percent increase in urban residential prices.

Suggested Citation

Rosston, Gregory L. and Savage, Scott and Wimmer, Bradley S., Regulated Prices with Competition and Heterogeneous Consumers (August 15, 2005). TPRC 2005. Available at SSRN: https://ssrn.com/abstract=2119656

Gregory L. Rosston (Contact Author)

Stanford Institute for Economic Policy Research ( email )

Landau Economics Building
579 Serra Mall at Galvez St.
Stanford, CA 94305-6015
United States

Scott Savage

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-735-1165 (Phone)
303-492-1112 (Fax)

HOME PAGE: http://holiday.colorado.edu/savages/

Bradley S. Wimmer

University of Nevada, Las Vegas - College of Business - Department of Economics ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
17
Abstract Views
293
PlumX Metrics