MARKET LIBERALIZATION AND THE PSYCHOLOGY OF FIRM PERFORMANCE

In this paper we study whether the progressive liberalization of the U .S. telecommunications industry has altered the psychology of firms' b ehavior and led to performance changes. A detailed theoretical framewo rk is developed, based on extension of the postulates of x-efficiency theory. Such an extension of x-efficiency theory enables us to make pr edictions regarding the direction of performance changes and whether a mong the various measures of performance there are likely to be cross- sectional differences, even as these different measures change over ti me. Two performance measures are computed. The first measures the abil ity of firms to maximize revenues, given their resources; the second m easures their ability to reduce costs given the level of outputs gener ated. We find that market liberalization has significantly impacted th e internal psychology within firms, in encouraging both entrepreneuria lly-oriented and productivity-oriented behavior. However, over time as the market gets more and more liberalized it is the entrepreneurially -oriented behavior that is dominant. We also examine whether ownership differences cause divergences among the firms studied in behavior and performance. We find that erstwhile AT&T-owned firms are always super ior to independents in revenue-maximizing skills, but in an era of mon opoly were not cost minimizers. In a liberalized environment their cos t minimization skills are also superior to the independent firms.