Review of Industrial Organization 18: 275–282, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
The Costs and Beneﬁts of Long-Distance Entry:
Regulation and Non-Price Discrimination
DENNIS L. WEISMAN
Department of Economics, Waters Hall, Kansas State University, Manhattan, KS 66506-4001,
MICHAEL A. WILLIAMS
PM Industrial Economics, 2200 Powell St. Suite 1080, Emeryville, CA 94608, U.S.A.
Abstract. A primary goal of the 1996 Telecommunications Act is to encourage competition in long-
distance telephone markets. Four years after passage of this legislation, Bell Operating Companies
(“BOCs”) have been granted permission to offer long-distance services in only one state. The regu-
latory barrier to entry is justiﬁed on grounds that the BOCs have the ability to discriminate against
incumbent long-distance carriers in the provision of essential access services. We take this premise
as given and quantify the critical level of discrimination required to offset the positive consumers’
surplus gains associated with the enhanced competition resulting from BOC entry into long-distance
Keywords: Consumers’ surplus, discrimination, entry, Telecommunications Act.
JEL Classiﬁcations: L1, L5.
More than four years have passed since the President signed into law the Tele-
communications Act of 1996 (“Act”), the thrust of which was to create an overlap
of long-distance and local service providers, so as to make telecommunications
markets more competitive.
(These markets are critical to the U.S. economy, as
consumers and businesses spent approximately $250 billion on local and long-
The authors wish to thank an anonymous referee and the editor for constructive comments on
an earlier draft of this manuscript. The authors owe a special debt of gratitude to Paul MacAvoy for
suggesting this research topic and for his constant encouragement and valued insights. The usual
Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996). The provisions of
the Telecommunications Act of 1996 were implemented as amendments to the existing Communic-
ations Act of 1934, which is codiﬁed throughout Title 47 of the United States Code (“47 U.S.C.”).
All further references throughout this paper to the 1996 Act cite the appropriate section of 47 U.S.C.