David Gabel

Competition in a Network Industry: The Telephone Industry, 1894–1910

The re-emergence of AT&T as the dominant firm in the telephone industry resulted from its adopting a predatory response to entrants. AT&Ts strategy was effective because government regulations and capital market imperfections provided the incumbent with a first-mover advantage that prevented challengers from entering simultaneously in all markets.

Economies of Scope in the Local Telephone Exchange Market

Using cost data generated by an optimization model, we evaluate the degree of economies of scope in the local telephone exchange market. We find that economies of scope between switched and non-switched services are a decreasing function of customer density, while there are strong economies of scope, regardless of customer density, within the switched telephone market.

Pricing of telecommunications services

Recently many scholars have argued that societys welfare would be increased if the price of local telephone service were increased, and the prices for toll and enhanced telecommunication services reduced. In this paper we argue that the telecommunications policy literature has largely ignored the impact of varying technical standards on the cost-of-service. Consequently, the marginal cost of exchange service has been overstated. We also show that most work in this area has overstated the elasticity-of-demand for toll services. Taking into account quality and the appropriate elasticities, we conclude that no clear welfare gains will be achieved by raising the price of exchange service.

AT&T's Strategic Response to Competition: Why Not Preempt Entry?

The idea that a monopolist would adopt a pricing strategy to deter entry is found in a wide body of research. We explore why the monopolist in the American telephone industry, AT&T, did not pursue such a strategy when its initial patents expired.

The Introduction of Automatic Switching into the Bell System: Market versus Institutional Influences

In neoclassical economics, the postulated behavior of firm profit maximization is a comprehensive idea that subsumes important institutional details concerning management and organization. In accounting for the behavioral diversity of firms in the same industry, the common practice of deducing the incentive structure that decides the behavior of firms from the concept of market forces is ineffective. 1 Differences in the behavior of firms facing similar environments is strong evidence that institutional details are needed to account for why precisely defined factors located in the external environment do not uniquely determine the sensitivity of a firm to market stimuli. An idea forcefully articulated by adherents of evolutionary economics is that firms operate in changing environments where there is no simple correspondence between having a goal (engage in activities valued by the market) and the myriad possible ways of achieving it.2 According to Nelson and Winter [1982], the existence of firm-specific knowledge embedded in routines plays a major role in explaining differences among firms facing similar market parameters. A key characteristic of routines is that knowledge is tacit. In evolutionary theorizing, the intelligence behind successful adaptations to changing environments is reflected in organizational capabilities that emerge from the practice of routines.3 The

Pricing voice telephony services: Who is subsidizing whom?

Local exchange companies (LECs) have argued that, because of entry, they will no longer be able to subsidize residential exchange service. The available economic data show that residential service is not subsidized. This finding casts doubt over the need for entrants to contribute to a universal service fund that would be used to subsidize residential service. Since 1984 there has been a radical decline in the cost of providing voice services. The failure of the LECs to adjust their rates to reflect the cost decline explains in part why competitive access providers have entered the market.

An application of stand-alone costs to the telecommunications industry

This article summarizes how new telecommunication services are affecting the design of networks, and examines how these developments can be taken into account in the identification of stand-alone and incremental costs. The results of applying cost models to Michigan Bells current physical assets are reported. Contrary to received opinion, it is found that toll service is not subsidizing local exchange service; on the contrary, the new enhanced services are the greatest beneficiaries from participation in the common exchange network.

Uber and the Persistence of Market Power

Abstract: Entry into the taxi industry involves few risks. Entrants have lower costs than the incumbents, sunk costs are small, and modern technology makes it easy to hail a cab using the Internet. Despite large scale entry and low barriers to entry, monopoly power persists. The persistence of monopoly power illustrates that new technologies may not quickly eviscerate monopoly power.

Historical Perspectives on Competition and Interconnection Between Local Exchange Companies: The United States, 1894–1914

Innovations in communications technology and state and federal regulations are currently dismantling the last vestiges of the Bell monopoly. Cellular service, for example, may soon afford a competitive alternative to the traditional voice and data communications services, carried along the wire plant of local exchange companies. At the same time, state and federal agencies are requiring local companies to open their networks to competitors, initially those providing access to interexchange carriers but eventually to companies offering local service as well.

Pricing of telecommunications services: a reply to comments

Essentially, the main part of the criticism directed at our paper consists of (a) the notion that we have not accounted for the option value of access to the telephone network or adequately represented how competitive markets would recover the cost of customer access; and (b) that we understate the price elasticity of toll service, which coupled with (a) leads to the supposedly spurious conclusion that it would be socially optimal to reduce or eliminate the access charge in favor of increased usage charges for telephone service. In this response, we will focus on (a); (b) is an empirical question. We do note though that while he is critical of the toll elasticities we discuss, L. Taylor does not suggest that the estimates are far out of line. More importantly, he does not claim that the more recent toll elasticity studies are free of the infirmities we addressed in our paper. 1 In our reply, we will also correct (hopefully) several minor misconceptions regarding our work.