Competition and subsidies in the deregulated US local telephone industry

Ying Fan, Mo Xiao

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

The 1996 Telecommunications Act opened the monopolistic US local telephone industry to new entrants. However, substantial entry costs have prevented some markets from becoming competitive. We study various subsidy policies designed to encourage entry. We estimate a dynamic entry game using data on potential and actual entrants, allowing for heterogeneous option values of waiting. We find that subsidies to smaller markets are more cost effective in reducing monopoly markets, but subsidies to only lower-cost firms are less cost effective than a nondiscriminatory policy. Subsidies in only early periods reduce the option value of waiting and accelerate the arrival of competition.

Original languageEnglish (US)
Pages (from-to)751-776
Number of pages26
JournalRAND Journal of Economics
Volume46
Issue number4
DOIs
StatePublished - Dec 1 2015

ASJC Scopus subject areas

  • Economics and Econometrics

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