Discriminatory Dealing with Downstream Competitors: Evidence from the Cellular Industry

One concern about regulated monopolies entering unregulated vertically-related markets is that they will discriminate against competitors of their unregulated affiliates. However, prohibiting regulated monopolies from offering related goods may preclude production by the most efficient provider. We take advantage of variation across geographic cellular phone markets in the US to examine the effect of integration on output, quality and prices. We find some evidence consistent with efficiencies (greater concentration of lines to users is associated with greater output and higher quality) and some consistent with discrimination (greater interconnection facility ownership concentration is associated with lower output and quality).