Are Vertically Integrated Dsl Providers Squeezing Unaffiliated Isps (and Should We Care)?

24 Pages Posted: 2 May 2005

See all articles by Robert W. Crandall

Robert W. Crandall

Brookings Institution; AEI-Brookings Joint Center for Regulatory Studies

Hal J. Singer

Econ One

Date Written: April 25, 2005

Abstract

Vertically integrated DSL providers have been accused of engaging in a price squeeze to foreclose unaffiliated Internet service providers (ISPs). A price squeeze is a special case of a refusal to deal, in which the access price is set so high as to prevent the downstream provider from covering its incremental costs, thereby foreclosing downstream competition. In this paper, we assess the merits of a generic price squeeze allegation made against a vertically integrated telecommunications company - namely, a DSL provider. We review the role of regulation in promoting competition by facilitating entry into broadband services by unintegrated ISPs. Next, we discuss the earlier generation of ISPs' contribution to consumer value, and ask whether they can continue to do so in a broadband world. We conclude that the social cost associated with the elimination of ISPs (and the incremental competition they inject at the retail level of broadband service) is negligible. Finally, we review the price squeeze allegations. Using a traditional antitrust paradigm, we identify the conditions under which such a price squeeze would harm consumer welfare. We conclude that while the price squeeze test yields information about the welfare of an equally efficient retailer, it yields little information about consumer welfare. We end by discussing the relationship between price squeeze and cross-subsidies.

Keywords: price squeeze, Internet, DSL, broadband, ISPs

JEL Classification: K21, L12, L41, L42, L50, L82, L96, K23

Suggested Citation

Crandall, Robert and Singer, Hal J., Are Vertically Integrated Dsl Providers Squeezing Unaffiliated Isps (and Should We Care)? (April 25, 2005). Available at SSRN: https://ssrn.com/abstract=710601 or http://dx.doi.org/10.2139/ssrn.710601

Robert Crandall

Brookings Institution ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States
202-797-6291 (Phone)
202-797-6181 (Fax)

AEI-Brookings Joint Center for Regulatory Studies

1150 17th Street, N.W.
Washington, DC 20036
United States

Hal J. Singer (Contact Author)

Econ One ( email )

805 15th Street
Suite 501
Washington, DC 20005
United States
202.312.3065 (Phone)

HOME PAGE: http://https://www.econone.com/staff-member/hal-singer/

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