Actual and Potential Competition in International Telecommunications
36 Pages Posted: 10 May 2014 Last revised: 22 Oct 2015
Date Written: October 21, 2015
By allowing carriers to route telephone calls over low-cost private lines, international simple resale (ISR) makes it possible for carriers to provide international telephone service without owning an international circuit. When approved, ISR reduces entry barriers and can increase competition. Using data from US markets from 1995 to 2004, we estimate the effects of ISR on entry and retail prices. Results show that ISR has a limited (and imprecisely estimated) impact on entry and actual competition. However, controlling for actual competition, ISR authorization causes an average reduction in prices of 32.7 percent. Markets with relatively high carrier surplus experience an additional reduction in the price by 0.4 percentage points, and prices are 3.4 percentage points lower in markets with relatively high private line capacity. Our findings suggest that ISR promotes potential competition and lower prices in markets where the threat of hit-and-run entry is more credible.
Keywords: Contestable Markets, Barriers to Entry, Competition, Policy Evaluation, Treatment Effects
JEL Classification: C21, D04, L1, L13, L96
Suggested Citation: Suggested Citation