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Bruno, Néstor
Year of Publication: 
Series/Report no.: 
Serie Documentos de Trabajo No. 645
Abstract (Translated): 
One of the first international cases of telecommunication regulation that sought that incumbent firms shared their economies of scope and their network economies with their competitors was the one that took place in the United States, through the so-called "Telecomm Act" (1996) and its corresponding implementation through the Federal Communications Commission (FCC) in that country. The paradigm behind that scheme is the belief that reduction in entry barriers can imply an increase in market entry, since competitors that do not have to sink costs in building new networks can be able to compete to gain market share. Once those competitors obtain that market share, therefore, they will be able to build their own networks, and hence they will increase market capacity and change market structure. This paper seeks to reconcile the empirical evidence about the project implemented by the FCC with a conceptual model of competition in telecommunications with is different from the one pursued by the US regulator between 1996 and 2005. It is shown that industry concentration stays high despite the introduction of competition in the incumbent's network, due to the existence of sunk costs with are endogenous to the industry. Those sunk costs, moreover, can also provoke distortions in prices and in investment decisions.
sunk costs
Document Type: 
Working Paper

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