AN ANALYSIS OF THE WELFARE EFFECTS OF LONG-DISTANCE MARKET ENTRY BY AN INTEGRATED ACCESS AND LONG-DISTANCE PROVIDER

This paper discusses the welfare effects of entry by a vertically inte grated access and long-distance service provider into the long-distanc e market. Using a stylized model of these markets, we conclude that su bstantial net consumer benefits arise when a vertically integrated fir m is created by the entry of a LEC into the long-distance market, and these gains are mostly achieved from declines in supra-competitive pro fits received by long-distance incumbents. We find that these gains do minate losses in producer surplus that could arise even if integrated firm entry were to displace more efficient long-distance providers.