Incentives for non-price discrimination

Abstract A regulated upstream monopolist supplies an essential input to firms in a downstream market. Non-price discrimination or sabotage becomes a concern when the upstream monopolist vertically integrates downstream. This article develops a simulation algorithm to determine the likelihood that discrimination will arise in equilibrium using data from the US long-distance market. Based on 1000 random draws of own and cross-price elasticities, the simulations reveal that discrimination arises in 934 cases at current access charges. This analysis has implications for regulatory policy, including access charge reform and entry by the Regional Bell Operating Companies into the interLATA long distance market.

[1]  Michael R. Ward.  Product substitutability and competition in long-distance telecommunications , 1999 .

[2]  Dennis L. Weisman.  The Incentive to Discriminate by a Vertically-Integrated Regulated Firm: A Reply , 1998 .

[3]  Dennis L. Weisman.  Regulation and the vertically integrated firm: The case of RBOC entry into interlata long distance , 1995 .

[4]  Dennis L. Weisman,et al.  Incentives for Discrimination when Upstream Monopolists Participate in Downstream Markets , 2001 .

[5]  Daniel F. Spulber,et al.  The Tragedy of the Telecommons: Government Pricing of Unbundled Network Elements Under the Telecommunications Act of 1996 , 1997 .

[6]  Dennis L. Weisman,et al.  The Costs and Benefits of Long-Distance Entry: Regulation and Non-Price Discrimination , 2001 .

[7]  John W. Mayo,et al.  Regulation, Vertical Integration and Sabotage , 2003 .

[8]  David M. Mandy.  Killing the Goose That May Have Laid the Golden Egg: Only the Data Know Whether Sabotage Pays , 2000 .

[9]  S. Salop,et al.  Anticompetitive Exclusion: Raising Rivals' Costs To Achieve Power over Price , 1986 .

[10]  Nicholas Economides,et al.  The Incentive for Non-Price Discrimination by an Input Monopolist , 1998 .

[11]  Dennis L. Weisman,et al.  Raising rivals' costs: The entry of an upstream monopolist into downstream markets , 1998 .

[12]  Simran K. Kahai,et al.  Is the "Dominant Firm" Dominant? An Empirical Analysis of AT&T's Market Power , 1996, The Journal of Law and Economics.

[13]  Michael R. Ward,et al.  Recent Empirical Evidence on Discrimination by Regulated Firms , 2002 .

[14]  D. Reiffen.  A Regulated Firm's Incentive to Discriminate: A Reevaluation and Extension of Weisman's Result , 1998 .