Competition and Price Dispersion in InternationalLong-distance Calling

This paper examines the relationship between changes in telecommunications provider competition on international long-distance routes and changes in prices. Overall, increased competition is associated with significantly lower prices to consumers of long-distance services. However, the relationship between competition and price varies according to the type of long-distance plan considered. For the plans frequently selected by price-conscious consumers, increased competition on a route is associated with lower prices. In contrast, for the basic international plans that are the default selection for consumers, increased competition on a route is actually associated with higher prices. Thus price dispersion appears to increase as competition increases. The views expressed in this paper are those of the author and not necessarily those of the OECD. I thank two anonymous referees, Joe Farrell, John Harkrider, Jim Lande, Bob Majure, Carl Willner and seminar participants at the FCC for their helpful comments. Special thanks for aid with data to Linda Blake, Mark Uretsky, Jim Lande, R.L. Smith and Carl Willner.