Cost Structure and Complementarity in the Us Telecommunications, 1989-1999

Abstract

A multiproduct cost model is estimated on a panel of US local exchange carriers from the period 1989-1999. Unlike earlier econometric research on the industry, the model allows specification of cost inefficiency. This is needed to get consistent parameter estimates. Results show slight economies of scale and density with moderate cost increments due to allocative inefficiency. Between network access provision and call services, there are anti-complementarities in costs. This finding, joint with cost elasticities' confirmation that the bottleneck of the technology is network access, might question the efficiency of vertical integration.

Keywords: Telecommunications, cost function, cost complementarity, inefficiency

JEL Classification: C33, L96