Quantifying the Benefits of Entry into Local Phone Service

Economides, Nicholas; Seim, Katja; Viard, V. Brian

doi:10.2139/ssrn.825984

Quantifying the Benefits of Entry into Local Phone Service

NET Institute Working Paper No. 08-01

NYU, Law and Economics Research Paper No. 05-23

58 Pages Posted: 24 Oct 2005 Last revised: 30 Nov 2011

See all articles by Nicholas Economides

Nicholas Economides

New York University - Leonard N. Stern School of Business - Department of Economics

V. Brian Viard

Cheung Kong Graduate School of Business

There are 2 versions of this paper

Date Written: February 2008

Abstract

Local telecommunications competition was an important goal of the 1996 Telecommunications Act. We evaluate the consumer welfare effects of entry into residential local telephone service in New York State using household-level data from September 1999 to March 2003. We address the prevalence of nonlinear tariffs by developing a discrete/continuous demand model that allows for service bundling and unobservable provider quality. We find that the average subscriber to the entrants' services gains a monthly equivalent of $2.33, or 6.2% of her bill, in welfare from competition. These gains accrue primarily from firm differentiation and new plan introductions rather than from price effects.

Keywords: Entry, Nonlinear Pricing, Telecommunications, Discrete/Continuous Demand

JEL Classification: D43, K23, L11, L13, L96

Suggested Citation: Suggested Citation

Economides, Nicholas and Seim, Katja and Viard, V. Brian, Quantifying the Benefits of Entry into Local Phone Service (February 2008). NET Institute Working Paper No. 08-01; NYU, Law and Economics Research Paper No. 05-23. Available at SSRN: https://ssrn.com/abstract=825984 or http://dx.doi.org/10.2139/ssrn.825984