Tacit Collusion under Regulation in the Pricing of Interstate Long-Distance Telephone Services

Paul W MacAvoy

Journal of Economics & Management Strategy, 1995, vol. 4, issue 2, 147-85

Abstract: Analysis of seven wholesale and retail markets for long-distance telephone services since the AT&T divestiture indicates that service provider concentration declined in the later 1980s and then stabilized in the 1990-1993 period. In addition to this stability in market shares, a number of other conditions established since 1990 have been conducive to the development of market sharing rather than significant price competition. The most important of these conditions has been the tariffing process of the Federal Communications Commission by which MCI&Sprint replicate AT&T's price announcements. As market shares stabilized and became more equal, and as regulation formalized the price-setting process, the price-cost margins of the three large carriers increased and became more nearly identical. These results are consistent not with price competition but rather with emerging tacit collusion among AT&T, MCI,&Sprint. Copyright 1995 by MIT Press.

Date: 1995
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