Journal of Regulatory Economics

, Volume 54, Issue 1, pp 81–104 | Cite as

Price competition in the market for business telecommunications services

  • Gregory L. Rosston
  • Scott J. Savage
  • Bradley S. Wimmer
Original article


We estimate a two-step control-function model that relates incumbent prices for small-business telecommunications services to the number of facilities-based entrants, cost, demand, regulatory conditions, and a correction for endogenous market structure. Results show that the price effects from entry are understated in ordinary least squares regressions. When controlling for endogeneity, prices are negatively related to the number of entrants, indicating that markets without a competitive presence could exhibit market power. These findings should prove helpful to the Federal Communications Commission and other State regulators determining the conditions under which price and other forms of regulation may be relaxed.


Market power Market structure Prices Telecommunications 

JEL Classification

L1 L13 L96 


  1. Abel, J., & Clements, M. (2001). Entry under asymmetric regulation. Review of Industrial Organization, 19, 227–242.CrossRefGoogle Scholar
  2. Bresnahan, T., & Reiss, P. (1991). Entry and competition in concentrated markets. Journal of Political Economy, 99(5), 977–1009.CrossRefGoogle Scholar
  3. Cameron, A., Gelbach, J., & Miller, D. (2008). Bootstrap-based improvements for inference with clustered errors. Review of Economics and Statistics, 90(3), 414–427.CrossRefGoogle Scholar
  4. Cameron, C., & Trivedi, P. (2010). Microeconomics using STATA, revised edition. College Station, TX: Stata Press.Google Scholar
  5. Economides, N., Seim, K., & Viard, B. (2008). Quantifying the benefits of entry into local phone service. RAND Journal of Economics, 39(3), 699–730.CrossRefGoogle Scholar
  6. FCC. (2016). Tariff Investigation, Order and Further Notice of Proposed Rulemaking. In the matter of business data services in an internet protocol environment, investigation of certain price cap local exchange carrier business data services tariff pricing plans, special access for price cap local exchange carriers, AT&T Corporation petition for rulemaking to reform regulation of incumbent local exchange carrier rates for interstate special access services. WC Docket No. 16-143 WC Docket No. 15-247 WC Docket No. 05-25 RM-10593, Rel. May 2, 2016.Google Scholar
  7. FCC, Common Carrier Bureau. (1996). Common carrier competition. Retrieved from
  8. Garen, J. (1984). The returns to schooling: A selectivity bias approach with a continuous choice variable. Econometrica, 52(5), 1199–1218.CrossRefGoogle Scholar
  9. Greenstein, S., & Mazzeo, M. (2006). The role of differentiation strategy in local telecommunication entry and market evolution. The Journal of Industrial Economics, 54, 323–350.CrossRefGoogle Scholar
  10. Hausman, J. (1978). Specification tests in econometrics. Econometrica, 46, 1251–1272.CrossRefGoogle Scholar
  11. Heckman, J. (1978). Dummy endogenous variables in a simultaneous equation system. Econometrica, 46, 931–959.CrossRefGoogle Scholar
  12. Heckman, J., & Robb, R. (1985). Alternative methods of evaluating the impacts interventions: An overview. Journal of Econometrics, 30, 239–267.CrossRefGoogle Scholar
  13. Hoxby, C., & Paserman, M. (1998). Overidentification test with grouped data. NBER Technical Working Paper No. 223.Google Scholar
  14. Imbens, G., & Wooldridge, M. (2007). Control function and related methods. Cambridge: NBER Summer Institute.Google Scholar
  15. Lee, L. F. (1982). some approaches to the correction of selectivity bias. The Review of Economics and Statistics, 49(3), 355–372.CrossRefGoogle Scholar
  16. Manuszak, M., & Moul, C. (2008). Prices and endogenous market structure in office supply superstores. The Journal of Industrial Economics, 56, 94–112.CrossRefGoogle Scholar
  17. Mazzeo, M. (2002). Competitive outcomes in product-differentiated oligopoly. The Review of Economics and Statistics, 84(4), 716–728.CrossRefGoogle Scholar
  18. Molnar, G., & Savage, S. (2017). Market structure and broadband internet quality. The Journal of Industrial Economics, 65(1), 73–104.CrossRefGoogle Scholar
  19. Nardotto, M., Valletti, T., & Verboven, F. (2015). Unbundling the incumbent: Evidence from UK broadband. Journal of the European Economic Association, 13(2), 330–362.CrossRefGoogle Scholar
  20. Petrin, A., & Train, K. (2010). A control function approach to endogeneity in consumer choice models. Journal of Marketing Research, 47(1), 3–13.CrossRefGoogle Scholar
  21. Poi, B. (2004). From the help desk: Some bootstrapping techniques. The Stata Journal, 4(3), 312–328.Google Scholar
  22. Rosston, G., Savage, S., & Wimmer, B. (2008). The effect of private interests on regulated wholesale and retail prices. Journal of Law and Economics, 51, 479–501.CrossRefGoogle Scholar
  23. Rysman, M. (2016). Empirics of business data services. White Paper, April. Accesse 23 September 2016.
  24. Singh, V., & Zhu, T. (2008). Pricing and market concentration in oligopoly markets. Marketing Science, 27(6), 1020–1035.CrossRefGoogle Scholar
  25. Sweeting, A. (2016). Review of Dr. Rysman’s “Empirics of Business Data Services” White Paper, April 26,
  26. Trost, R., & Lee, L. F. (1984). Technical training and earnings: A polychotomous choice model with selectivity. The Review of Economics and Statistics, 66(1), 151–156.CrossRefGoogle Scholar
  27. U.S. Census Bureau. (2002a). Census 2000 summary file 3, census of population and housing, U.S. Department of Commerce, Economics and Statistics Administration.Google Scholar
  28. U.S. Census Bureau. (2002b). County business patterns 2001, U.S. Department of Commerce, Economics and Statistics Administration.Google Scholar
  29. Valletti, T. (2016). Peer review of business data services industry white paper, Accessed 23 September 2016.
  30. Wallsten, S., & Mallahan, C. (2013). Residential broadband competition in the United States. In S. Greenstein, A. Goldfarb, & C. Tucker (Eds.), The economics of digitalization. Northampton, MA: Elgar Publishing.Google Scholar
  31. Wooldridge, J. (2015). Control function methods in applied econometrics. Journal of Human Resources, 50(2), 420–445.CrossRefGoogle Scholar
  32. Xiao, M., & Orazem, P. (2011). Does the fourth entrant make any difference? Entry and competition in the early U.S. broadband market. International Journal of Industrial Organization, 29(5), 547–561.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Stanford Institute for Economic Policy ResearchStanfordUSA
  2. 2.Department of EconomicsUniversity of ColoradoBoulderUSA
  3. 3.Department of EconomicsUniversity of NevadaLas VegasUSA

Personalised recommendations