Interstate Long Distance Rates: Search Costs, Switching Costs, and Market Power

Interstate Long Distance Rates: Search Costs, Switching Costs, and Market Power A number of authors have argued that the divestiture of AT & T did not reduce the rates of long distance telephone companies as often believed. However, the literature has offered few explanations as to why competition has not lowered rates. This study argues that rates have failed to fall due to the importance of search and switching costs in the industry. Using a panel data set of rates for the three largest long distance carriers, stretching from 1984 to 1993, a reduced form equation is specified to empirically test for the influence of search and switching costs on the price cost margin of the three carriers. The results illustrate that both search and switching costs have provided long distance carriers with market power. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Interstate Long Distance Rates: Search Costs, Switching Costs, and Market Power

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Publisher
Springer Journals
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1007785307504
Publisher site
See Article on Publisher Site

Abstract

A number of authors have argued that the divestiture of AT & T did not reduce the rates of long distance telephone companies as often believed. However, the literature has offered few explanations as to why competition has not lowered rates. This study argues that rates have failed to fall due to the importance of search and switching costs in the industry. Using a panel data set of rates for the three largest long distance carriers, stretching from 1984 to 1993, a reduced form equation is specified to empirically test for the influence of search and switching costs on the price cost margin of the three carriers. The results illustrate that both search and switching costs have provided long distance carriers with market power.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Sep 29, 2004

References

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