J. Gregory Sidak

Incentives for Anticompetitive Behavior by Public Enterprises

We examine the competitive behavior of a public enterprise that does not seek solely to maximize its profit. We find that despite a reduced focus on profit, a public enterprise may have stronger incentives to pursue anticompetitive activities than does a private, profit-maximizing firm. These activities include setting prices below marginal cost, raising the operating costs of existing rivals, erecting entry barriers to preclude the operation of new competitors, and circumventing regulations designed to foster competition.

A Consumer-Welfare Approach to the Mandatory Unbundling of Telecommunications Networks

In this Article, Professors Hausman and Sidak propose a consumer-welfare model for the mandatory unbundling of telecommunications networks. Their approach, responsive to both the Supreme Courts 1999 decision in AT&T Corp. v. Iowa Utilities Board and the Federal Communications Commissions Second Further Notice of Proposed Rulemaking later the same year, reconciles the necessary and impair standards of Statute 251(d)(2) of the Telecommunications Act with the economic analysis of antitrust law. The essential facilities doctrine in antitrust law provides four necessary, but not sufficient, conditions for finding impairment. The authors add a fifth condition, responsive to the explicit text of Statute 251(d)(2), which addresses whether an incumbent local exchange carrier could exercise market power over end-users by restricting competitors access to a requested telecommunications network element in a particular geographical market. The authors also recommend that necessary be interpreted to mean that competition in end-user services would be impossible unless the requested element were unbundled at a cost-based regulated price. This heightened standard, they argue, will protect the economic incentives to create the intellectual property embodied in elements that are proprietary in nature. The authors proposed interpretation of Statute 251(d)(2) focuses on the effectiveness of competition in the end-user services market, rather than on the ability of a particular competitor to earn profits. Thus, the test adopts consumer welfare, rather than competitor welfare, as its touchstone.

Is Mandatory Unbundling the Key to Increasing Broadband Penetration in Mexico? A Survey of International Evidence

We examine empirically the proposition that mandatory unbundling is the key to increasing broadband penetration in Mexico. We begin by reviewing the empirical economic literature on the relationship between mandatory unbundling and two measures of economic performance: (1) broadband penetration and (2) investment by entrants and incumbent network owners. We explain why a policy that aims to maximize broadband penetration might be inconsistent with maximizing static and dynamic efficiency. Next, we present new empirical results on the effect of mandatory unbundling on investment by entrants and incumbents. We find that, despite the best efforts of the regulators, no EU country has experienced the promised transition from resale to bitstream to local loop unbundling (LLU). Countries with strong unbundling policies, such as those in the EU, have much lower incumbent network investment than countries that have much less aggressive wholesale unbundling policies, such as Canada and the United States. We conclude with alternative policy recommendations for stimulating broadband penetration in Mexico. Because access to computers is the binding constraint on broadband penetration - only 20 percent of homes own a computer - we propose that Mexico subsidize the price of computers to stimulate broadband adoption.

Capital Subsidies, Profit Maximization, and Acquisitions By Partially Privatized Telecommunications Carriers

A recent phenomenon in competition policy is the acquisition of a private firm by an enterprise that is either wholly owned by government or in the midst of privatization. Such an acquisition poses the question of how public ownership may alter the incentives of a firm to engage in anticompetitive conduct. It also prompts one to examine the process by which such altered incentives revert, as the level of government ownership declines, to the same incentives that face purely private firms. Using Deutsche Telekoms acquisition of VoiceStream Wireless as a case study, this article presents the economic questions relevant to evaluating the competitive consequences of acquisitions by partially privatized firms. It predicts gains or losses to various constituencies of producer groups. It then analyzes bond ratings and weighted-average costs of capital to determine whether such data are consistent with the hypothesis, advanced by parties opposed to such foreign investment, that partially privatized acquirers benefited from the government subsidization of their credit.