The Effects of International Simple Resale on Prices in International Telecommunications Markets

Abstract

This paper empirically investigates the effect of international simple resale (ISR) authorization on the prices for international message telephone service (IMTS). We compile a firm-level panel data set for over 200 United States-foreign country bilateral markets from 1995 to 2004. These data provide detailed information on prices, variable costs, fixed costs and market shares for 75 firms for each bilateral market, as well as the timing of ISR authorization by the Federal Communications Commission for each bilateral market. Estimates from a difference-in-differences model show that ISR authorization, and the associated lowering of barriers to entry, almost always results in lower prices for all markets. Additionally, we find evidence that ISR authorization alters the relationship between market concentration and price. Prior to ISR authorization more concentrated markets have higher prices. ISR authorization dampens this effect and in some cases reverses the relationship so that market concentration is negatively correlated with IMTS prices set by incumbent firms.