DOMINANT FIRM PRICING WITH COMPETITIVE ENTRY AND REGULATION - THE CASE OF INTRALATA TOLL

In this paper, we develop a generalized model of a dominant firm-compe titive fringe industry in which products are differentiated, costs var y across suppliers, and the dominant firm is subject to alternative re gulatory regimes. The model yields an equilibrium condition that can b e tested empirically using data on Bell Operating Companies' pricing o f intraLATA toll telephone service. Estimation of a reduced form price equation provides strong support for the theoretical model. Of partic ular interest. the results suggest that dominant firm (Bell Operating Company) toll prices are driven down by the presence of actual and pot ential fringe competitors (interexchange carriers) when entry is autho rized by the state. Additionally, the results fail to provide evidence that the introduction of incentive regulation or price-cap regulation has reduced intraLATA toll prices.