Product substitutability and competition in long-distance telecommunications

I estimate the degree of substitutability between U.S. long-distance teleco mmunications carriers. AT&T's Marshallian demand elasticity for basic long- distance service is estimated to be about -10. With various assumptions reg arding producer behavior, a range of residual demand elasticities, price-co st margins, and the dead-weight losses are calculated. I argue that produce r behavior is such that the dead-weight loss to supracompetitive pricing is likely to be about 1.5% of industry revenues. The results bear on whether AT&T's deregulation was merited and whether to allow the Bell Operating Com panies to enter the long-distance market. (JEL L13, L96, C30).