What level of dialtone penetration constitutes ‘universal service’?

This paper focuses on estimating whether a natural level of non-penetration exists, and if so, what the maximum attainable penetration rate is. Universal service penetration levels have steadily increased over the last decade. This paper hypothesizes that penetration levels will level off over time at some point below 100%. Econometric models have been created to estimate penetration rates as a function of several explanatory variables, including per capita personal income, price changes for residential local service, price changes for toll services, and the existence of lifeline programs. The modeling results also provide information on cross-elasticities between toll and local service and the effects of the FCC's subscriber line charges and lifeline programs on the universal service policy goal. In summary, this research provides new information on the topic of what constitutes universal service and provides considerable data regarding own-price and cross-price elasticities associated with residential local service.     

The implications of economic efficiency for US telecommunications policy

Subsidizing local residence telecommunications service from toll services has produced large distortions in US state and interstate toll markets. While both the business and residence groups as a whole would benefit from lower toll prices and higher residence prices, the fact that toll usage is concentrated means that most residence subscribers would be made worse off. It is therefore politically difficult to implement efficient telecommunications pricing. However, this same concentration of toll usage makes it advantageous for large toll users to bypass the local network to escape the subsidy-laden carrier access charges. Such a bifurcation of the telecommunications network has the potential for making most residence subscribers even worse off than they would be under an efficiency- enhancing reduction in toll prices.     

Managing and modeling the price reduction effect in mobile telecommunications traffic

As needs for telecommunications services diversify, an increasingly wide range of services is becoming available in the market. Service price reduction is one strategy used by service providers to retain existing subscribers. A price reduction for one service, however, can affect the individual-level usage for other services. Price reductions can also be imposed on a service provider by regulation. For these reasons, understanding how price reductions affect service usage is of growing importance to the telecommunications industry for purposes of pricing and tariff development. In this paper, an individual-level usage model for telecommunications services is developed and the effects on usage of a price reduction are analyzed. The model is applied to age-stratified aggregate traffic data for a Korean mobile telecommunication service provider. Finally, a 0-1 integer programming model is proposed for choosing which market segment should be targeted with a price reduction to minimize revenue loss. These models can be applied to market segmentation and price reduction strategy.     

Estimating consumer surplus in the mobile telecommunications market: The case of Korea

This paper estimates consumer surplus in the Korean mobile telephone services (MTS) market. The Korean mobile telecommunications market has grown rapidly since 1997 when competition was introduced and Code Division Multiple Access (CDMA) technology was commercialized. Because consumer surplus is relevant to the controversy over establishing an appropriate price level between consumers and service providers, the need for a robust measurement of benefit from MTS is increasing. The measured net consumer surplus estimated by means of elasticities of demand reached about US$48.8 billion in the period 1996–2004 and the changes amounted to about US$8.8 billion during the same period. In particular, after competition was introduced into the market with an accompanying price decrease and increase in the number of subscribers, consumers have benefited greatly. Therefore, it can be inferred that a facility-based competition policy and the reduction in price of access such as handset subsidies all played a positive role in the early diffusion of MTS in Korea. The estimated consumer surplus in this paper does not include network externality (option externality); if this were considered, the total social welfare of the consumer would be larger.     

An antitrust analysis of bundled loyalty discounts

Consider a monopolist in one market that faces competition in a second market. Bundled loyalty discounts, in which customers receive a price break on the monopoly good in exchange for making all purchases from the monopolist, have ambiguous welfare effects. Such discounts should not always be treated as a form of predatory pricing. In some settings, they act as tie-in sales. Existing tests for whether such discounts violate competition laws do not track changes in consumer surplus or total surplus. We apply a new test to an illustrative example based on SmithKline that assumes the “tied” market has homogeneous goods. If the tied market is characterized by Hotelling competition, bundling by the monopolist causes the rival firm to reduce its price. In numerical examples, we find that this can deter entry or induce exit.     

Quality-adjusted international price comparisons of mobile telecommunications services

Many countries' policymakers have conducted international price comparisons of mobile telecommunications services to prevent service operators from overcharging subscribers. However, those comparisons have become more complicated because of the escalation in service usage and telecommunications expenditures spurred by the proliferation of smartphones and broadband LTE wireless internet service networks. The basket-based methodologies that have been widely used for international price comparisons are also limited—first, because the baskets for comparison may not be representative of actual service usage patterns in some countries; second, because they are difficult to apply to highly differentiated service plans due to the significant increase in wireless internet service usage and widely used plans with unlimited voice call service and SMS/MMS; and third, because they cannot consider the quality of service, such as upload and download speed in various service environments, at all. As an alternative, this paper proposes a hedonic pricing model that accounts for service quality and its variation in potentially disruptive environments, as well as fixed charge for a mobile phone additional to the price of service plans. The model was used to derive quality-adjusted price indices of mobile telecommunications services for twelve cities in ten countries with broadband LTE wireless internet service. The empirical results confirmed that the price index of each city varied significantly across the specifications,—both within the United States and internationally—depending on whether the model was constructed to reflect service quality and its variation on roads, in buildings, and in subways. The price index of each city also varied depending on whether the subsidized price of a mobile phone was considered part of the monthly price of a service plan. These results have important implications for policymakers seeking to understand the ultimate level of mobile telecommunication service prices for their country in a global context.     

Competition reform and household welfare: A microsimulation analysis of the telecommunication sector in Ethiopia

This paper presents a novel simulation method for estimating the likely welfare effects of policy reforms aimed at increasing competition in strategic economic sectors such as mobile phone services. The proposed method relies on a partial equilibrium simulation approach and estimates the welfare impacts on current consumers and the potential welfare effects among new consumers brought into the market by changes in prices due to competition. This approach is applied to the information and communication technology (ICT) sector in Ethiopia, one of the three countries in the world with a monopoly in the market for mobile phone services. Based on household budget survey data for 2015/16 and departing from a baseline reform scenario that dilutes the market share of the state-owned monopoly to 45 percent, the simulation model estimates a 25.3 percent reduction in the price of mobile services and an increase in 5.7 million new users of mobile services. The predicted drop in prices and increased users would generate a combined relative welfare gain of 1.18 percent (1.09 percent among current users and 0.09 percent among new users), that could be translated into a 0.31 percentage point decline in the national poverty rate and equivalent to lifting about 275,000 people out of poverty. Alternative reform scenarios that dilute the market share of the monopoly to 75 percent and to 30 percent are expected to reduce poverty rate in 0.13 and 0.52 percentage points, respectively. The method proposed in this study represents a useful tool for promoting competition reforms in developing countries, particularly in sectors known for excluding significant segments of the population because of high consumer prices.     

Demand for telecommunication services in developing countries

Living standards and economic growth in developing countries are invariably linked to the availability and use of telecom services. Effective policy decisions require the best estimates of the drivers of these services. In this paper, telecommunications demand is estimated in models for residential mainline and mobile telephone service for developing countries for the period 1996–2003. The paper tests for cross-price effects between mainline and mobile service and its findings have important policy implications. It finds residential monthly price elasticity to be insignificant for developing countries, but the connection elasticity is larger than generally found in the literature. Mobile monthly price elasticities are very large. A new and important empirical finding is that although wireline phones are substitutes in the mobile market, the contrary is not true—mobile phones are not substitutes in the wireline market, and in fact may be considered complements. This lack of symmetry has important implications for properly defining telecom markets. Universal service subsidies and competitive market initiatives should be reevaluated in light of the paper's elasticity estimates. Increased competition, income growth and enhanced education may be the ultimate universal service promoters.     

Pricing Augmented Commercial Services

The delivery of augmented services is a powerful demonstration of innovative product/service management. Based on well-executed scanning and positioning efforts, augmented services allow marketers to obtain a premium price for their innovative ness by delivering more than what consumers have learned to expect. For this purpose, Roberto Friedmann and Warren French have developed the notion of an augmented service. They then proceed to outline the necessary considerations and procedures for creating an augmented service that commands a premium price in its market.     

Fuly Distributed Cost Pricing,Ramsey Pricing,and Shapley Value Pricing: A Simulated Welfare Analysis for the Telephone Exchange

Economic theory has long been concerned with determining the optimal pricing scheme for a multiproduct monopoly, but it has been quite difficult to make use of developments in practice. Using LECOM, the Local Exchange Cost Optimization Model, over three stylized city maps, and assuming price elasticity values taken from the literature for four standard outputs of the local exchange, we demonstrate how fully distributed cost prices, Ramsey-optimal prices, Shapley prices, and standalone prices can be computed for a variety of baseline output levels. Analysis of consumer surplus changes relative to the marginal cost baseline shows that while Ramsey pricing maximizes social welfare over the set of schemes considered, only the Shapley approach results in subsidy-free prices.     

Platform Investment and price parity clauses*

Platforms use price parity clauses to prevent sellers setting lower prices when selling through other channels. They claim these restraints are needed so platforms have incentives to invest in providing search services—without them, consumers would search on the platform but then switch to buy in a cheaper channel. In a model incorporating these effects, we find that wide price parity clauses lead to excessive platform investment while narrow (or no) price parity clauses lead to insufficient platform investment. Taking these investment effects into account, wide price parity clauses lower consumer surplus but have ambiguous effects on total welfare.     

Barriers to Entry and Competitive Behavior: Evidence from Reforms of Cable Franchising Regulations

Between 2005 and 2008, nineteen of the fifty states of the U.S. reformed the franchising process for cable television, significantly easing entry into local markets. Using a difference‐in‐differences approach that exploits the staggered introduction of reforms, we find that prices for ‘Basic’ service declined systematically by about 5.5 to 6.8 per cent following the reforms, but we find no statistically significant effect on average price for the more popular ‘Expanded Basic’ service. We also find that the reforms led to increased actual entry in reformed states, by about 11.6% relative to non‐reformed states. Our analysis shows that the decline in price for ‘Basic’ service holds for markets that did not experience actual entry, consistent with limit pricing by incumbents. To control for potential state‐level shocks correlated with the reforms, we undertake a sample‐split test that finds larger declines in prices for both ‘Basic’ and ‘Expanded Basic’ services in local markets which faced a greater threat of entry (because they were close to a prominent second entrant). Our results are consistent with limit pricing models that predict incumbents respond to increased threat of entry, and suggest that the reforms facilitated entry and modestly benefited consumers in reformed states.     

Testing for Competitiveness of Markets for Long Distance Telephone Services: Competition Finally?

Telecommunications regulatory policy is driven by rhetoric and myth concerning the competitiveness of long-distance service. Relying on behavioral tests for competitiveness, this review brings up to date analytical work establishing the pattern of competition or the lack of competition since the 1984 AT & T divestiture. Through mid 1997, the three large long-distance carriers in setting their price-cost margins have managed to carry through on a previously established strategy of tacit collusion in both message toll services and WATS-type business services. The remarkable results have been that price-cost margins increased while sales concentration declined. This general pattern is not contradicted by the most recent offering of 15-cent per minute one price on new discount plans since that too implies an increase in carriers' price cost margins as concentration continued to decline.     

Innovation: A data-driven approach

A newly introduced product or service becomes an innovation after it has been proven in the market. No one likes the fact that market failures of products and services are much more common than commercial successes. A data-driven approach to innovation is proposed. It is a natural extension of the system of customer requirements in terms of their number and type and the ways of collecting and processing them. The ideas introduced in this paper are applicable to the evaluation of the innovativeness of planned introductions of design changes and design of new products and services. In fact, blends of products and services could be the most promising way of bringing innovations to the market. The most important toll gates of innovation are the generation of new ideas and their evaluation. People have limited ability to generate and evaluate a large number of potential innovation alternatives. The proposed approach is intended to evaluate many alternatives from a market perspective.     

我国城市路桥年票的合理定价与和谐关系研究

城市道路作为典型的准公共品,已经引起社会各方面的关注。文章从城市经济、路桥贷款、车辆拥有量和路桥需求三方面,研究了三个必须考虑的因素和三个必须考虑的关系对年票制合理定价的影响。主要结论是：城市居民人均收入、投资还贷额、财政收入与年票定价显著正相关,这说明成功实施年票制的城市必须考虑了市民的经济承受能力和还贷的压力;年票价格与政府市民和谐关系、政府与投资者关系和城市路桥需求有显著的相关关系。这些结果为我国年票定价中采用部分市场定价机制提供了基础。也为城市路桥合理定价中如何权衡各方的经济利益和促进社会和谐提供了相关的理论和实证支持。     

The social loss from private monopoly and optimal antitrust enforcement

In this paper we argue that the welfare loss from monopoly equals deadweight loss plus expenditures by monopolists to defend and antitrust enforcers to attack their monopolies. A model of a profit-maximizing monopolist and a social loss-minimizing antitrust enforcer is developed. We find ambiguous effects of deadweight loss and the price of resources used by either party (in maintaining or attacking the monopoly) on the total welfare loss from monopoly. Monopoly profit has a positive but diminishing impact on monopoly welfare loss. Thus the entire monopoly profit will not be transformed into socially useless resource expenditure.     

Financing a central research laboratory: A tool of R & D subsidy policy

Abstract . In this paper we discuss two major issues of financing a central research laboratory.
First, the decision faced by the firm or the division whether to invest in its own laboratory or to rent compatible central laboratory services. The second issue is the price that a central laboratory should charge for renting out its facilities.
Under the assumptions that a laboratory can serve a large number of users over a long period of time and thus diversify the risk of liquidation better than a single firm or division, we show that, under uncertainty, the rent for the central laboratory assets is less than the price that a firm is willing to pay for its usage. This surplus has interesting policy implications for the diversified firm that operates a central R & D laboratory for the use of its divisions and may wish to establish a transfer price system. Moreover, if the government finances a central laboratory to service industrial firms and it follows a policy of subsidizing industrial R & D, the surplus may be given to the user of the laboratory as a direct subsidy.     

Lump-Sum Payments and Retail Services: A Relational Contracting Perspective*

How should manufacturers motivate their retailers to provide customer services? The vertical restraints literature tells us that retail competition distorts service incentives in the short run. We consider how repeated interaction mitigates this problem, and particularly how a manufacturer can provide service incentives with discretionary lump-sum payments. We find that these payments may allow the manufacturer to sustain optimal service levels even if retailers are very impatient. We also show that banning reverse lump-sum payments may deprive consumers of the chance to enjoy high-quality services, and thereby reduce their welfare.     

Economic Efficiency and Political Capture in Public Service Contracts

We consider contracts for public transport services between a public authority and a transport operator. We build a structural endogenous switching model where the contract choice results from the combined effects of the incentivization scheme aimed at monitoring the operator's efficiency and the political agenda followed by the regulator to account for the voice of private interests. Our results support theoretical predictions as they suggest that cost‐plus contracts entail a higher cost for society than fixed‐price contracts but allow the public authority to leave a rent to a subset of individuals. Accounting for transfers to interest groups in welfare computations reduces the welfare gap between cost‐plus and fixed‐price regimes.     

Complexity in the telecommunications industry: When integrating infrastructure and services backfires

The emergence of pure Internet-based service providers has put many integrated telecommunications firms - industry incumbents that provide services on their own infrastructure - under massive pressure. While various pure service providers enjoy high performance, the products offered by the incumbents often cannot compete on either price or user experience. Conventional wisdom, however, might suggest the opposite: that coordinating both infrastructure and services might allow the incumbents to reap synergy effects and create superior products. To address this issue, this paper applies a complex systems perspective to the telecommunications industry. It conceptualizes telecommunications firms to be searching for good configurations of interdependent service and infrastructure activities that need to fit together to achieve high-performing product systems. Using a simulation model, the paper shows that integrated operators can indeed take advantage of the interdependencies between the infrastructure and the service domain, resulting in superior product performance. Integrating infrastructure and services, however, can backfire: because learning about both domains and their interdependence requires more time, performance in the short run will be lower than that of pure service providers that can focus on adapting their service-related activities to an infrastructure that is beyond their control. The paper characterizes the conditions under which these effects can arise and concludes with implications for management and policy.