Rent-seeking in the deregulatory environment: State telecommunications

Abstract

Proponents of rent-seeking theories argue that firms pressure and reward politicians and bureaucrats to pursue favorable policies so they can achieve higher than normal, market returns. In an era of deregulation, often with long transition periods toward unregulated competition, how do firms develop specific political strategies to achieve success in rent-seeking? Deregulation of telecommunications at the state level allows comparison of the strategies of the seven firms created in the AT&T divestiture in more than one political jurisdiction. One firm, U S West, has pursued the most aggresive political strategy. This paper argues that U S West executives correctly perceived that the political environment in which they operated differed greatly from that in the rest of the country and that a different deregulatory strategy was appropriate. The firm exploited institutional differences by bypassing state regulators and going directly to state legislators to get favorable policies.