Quantifying the Benefits of Entry into Local Phone Service

Nicholas Economides (), V. Viard and Katja Seim ()
Additional contact information
Katja Seim: Stanford University

No 07-38, Working Papers from NET Institute

Abstract: In this paper, we evaluate the consumer welfare effects of entry into residential local phone service in New York State. Residential local phone service competition was an important goal of the 1996 Telecommunications Act. We provide a detailed evaluation of its effects on consumer welfare using household-level data on service choices from the third quarter of 1999 to the first quarter of 2003. Our results indicate that as a result of entry households that subscribe to one of the entrants' services gain on average an equivalent of $2.33 per month in overall welfare from local telecommunications services, or 6.2% of the households' average bill. Averaged across all households including those that remain with the incumbent, households gain the equivalent of $0.83 per month, although benefits vary dramatically across households. Since residential local phone service is sold under a menu of nonlinear tariffs, we develop a method for estimating a mixed discrete/continuous demand model. The econometric model incorporates the simultaneity of the discrete plan and continuous consumption choices by consumers. We allow for flat-rate plans, bundling of services, and unobservable firm quality. Taking advantage of the detailed nature of the data, we decompose the households' overall gains from entry and find that benefits due to firm differentiation and new plan introductions exceed those from price effects.

Keywords: Entry; Nonlinear Pricing; Telecommunications; Discrete/Continuous Demand (search for similar items in EconPapers)
JEL-codes: D43 K23 L11 L13 L96 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2007-10, Revised 2007-10
New Economics Papers: this item is included in nep-com, nep-law, nep-mic and nep-ure
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Downloads: (external link)
http://www.stern.nyu.edu/networks/Local_Telecommunications.pdf (application/pdf)
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Related works:
Journal Article: Quantifying the benefits of entry into local phone service (2008)
Working Paper: Quantifying the Benefits of Entry into Local Phone Service (2007)
Working Paper: Quantifying the Benefits of Entry into Local Phone Service (2007)
Working Paper: Quantifying the Benefits of Entry into Local Phone Service (2005)
Working Paper: Quantifying the Benefits of Entry into Local Phone Service (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:0738

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