Competition and Price Dispersion in International Long Distance Calling

Title: Competition and Price Dispersion in International Long Distance Calling

Abstract: This research study investigates the relationship between competition and pricing in the international long-distance calling market. The main finding is that as competition increases, price dispersion, or the variation in prices, also increases. This surprising result suggests that while competition generally leads to lower prices, it can also result in higher prices for some consumers.

Research Question: How does competition affect pricing in the international long-distance calling market?

Methodology: The study analyzed data from the US long-distance telecommunications market, focusing on international long-distance plans. It used regression analysis to examine the relationship between changes in telecommunications provider concentration and changes in prices on different long-distance plans.

Results: The study found that increased competition on a route is associated with lower prices for international flagship plans, which are chosen by more price-conscious consumers. However, for basic international plans, which are the default selection for consumers who do not subscribe to special plans, increased competition on a route is associated with higher prices. This suggests that price dispersion increases as competition increases.

Implications: The study's findings have significant implications for the telecommunications industry and consumers. For providers, it suggests that increased competition may not always lead to lower prices, and they may need to develop strategies to attract and retain customers. For consumers, it means that while competition can lead to lower prices, it can also result in higher prices for some, depending on the type of plan they choose. This highlights the importance of consumer awareness and choice in promoting competition and lower prices.

Link to Article: https://arxiv.org/abs/0109036v1 Authors: arXiv ID: 0109036v1