Mandated Access and the Make-or-Buy Decision: The Case of Local Telecommunications Competition

20 Pages Posted: 31 Jul 2003 Last revised: 12 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

Thomas Koutsky

USAID Global Development Lab

Date Written: September 9, 2010

Abstract

When the facilities of an incumbent monopolist are made available to potential competitors through some type if "essential facilities" or related claim, a common concern is that the ability to "buy" inputs substantially attenuates the incentive to "make" inputs. In this paper, we evaluated both theoretically and empirically the relationship between "make" and "buy." In our particular construct, three sometimes-conflicting effects are relevant to the "make-or-buy" decision, of which the substitution effect is only one. Our empirical example considers the deployment of switching facilities by entrants to local exchange telecommunications markets, and these empirics indicate that the substitution effect is not dominant. While particular to telecommunications, our findings do support the general notion that the substitution effect is not the only relevant consideration, either theoretical or empirical, for policy makers in selecting what inputs to make available to entrants when promoting competition in the utility industries.

Suggested Citation

Beard, Thomas Randolph and Ford, George S. and Koutsky, Thomas M., Mandated Access and the Make-or-Buy Decision: The Case of Local Telecommunications Competition (September 9, 2010). Quarterly Review of Economics and Finance, Vol. 45, pp. 28-47, 2005. Available at SSRN: https://ssrn.com/abstract=422523 or http://dx.doi.org/10.2139/ssrn.422523

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

Thomas M. Koutsky

USAID Global Development Lab ( email )

1300 Pennsylvania Avenue NW
Washington, DC 20577
United States

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