IS THE DOMINANT FIRM DOMINANT - AN EMPIRICAL-ANALYSIS OF AT-AND-TS MARKET POWER

In this article, we estimate the degree of market power held by AT&T i n the interstate long-distance market in the postdivestiture period. O ur approach makes use of the dominant firm/competitive fringe model to impose the structure needed both to obtain estimates of the relevant structural parameters and to translate these parameters into an estima te of AT&T's residual demand elasticity and associated Lerner index. B ecause of the continued presence of regulation and other consideration s, however, a direct estimation of the residual demand elasticity is n ot feasible. Consequently, we take a more indirect approach that combi nes estimation of the elasticity of fringe firm supply, market demand estimation, and extant market share data to generate estimates of the desired elasticity. The resulting estimates strongly support the concl usion that AT&T lacks significant market power in the postdivestiture long-distance market.