Discriminatory dealing with downstream competitors: Evidence from the cellular industry

One concern about regulated monopolies entering unregulated vertically-rela ted markets is that they will discriminate against competitors of their unr egulated affiliates. However, prohibiting regulated monopolies from offerin g related goods may preclude production by the most efficient provider. We take advantage of variation across geographic cellular phone markets in the US to examine the effect of integration on output, quality and prices. We find some evidence consistent with efficiencies (greater concentration of l ines to users is associated with greater output and higher quality) and som e consistent with discrimination (greater interconnection facility ownershi p concentration is associated with lower output and quality).