Working Paper 99-08
Department of Economics
University of North Carolina, Chapel Hill
http://www.unc.edu/depts/econ

 

 

The Economics of BOC Long Distance Entry when Access Rates are above Costs

 

Gary Biglaiser
Dept. of Economics
Gardner Hall,CB#3305
University of North Carolina
Chapel Hill, NC 27599-3305
919-966-4884 FAX 919-966-4986
gbliglais@email.unc.edu

 

Patrick DeGraba
Federal Communications Commission

 

Abstract

We examine a series of models in which an incumbent local phone carrie sells access to its network to long distance carriers at a regulated price above marginal costs. When the incumbent maximizes short run profits, consumers are always made better off when the incumbent enters the long distance market and typically welfare increases. We also examine two dynamic games with demand uncertainty to see whether the BOC's incentive to prey is increasing or decreasing in the price of access. The incentive to prey is decreasing in the price of access in one of the games, and maybe either decreasing or increasing in the other. We discuss other network industries where this model may be appropriate.