This study aims to examine competitive entry in the presence of cross‐subsidization of firms in the telecommunications industry.
How variations in cross‐subsidies, received via the separations mechanism, influence firms to enter the territories of incumbents is assessed for the population of local exchange firms in the USA.
Firms able to obtain greater cross‐subsidies, on average, experience less entry within their territories. Competition has evolved considerably in the telecommunications industry in the last two decades.
These results point to the need for evaluating cross‐subsidies, where these may still exist, so as to encourage entry.
This article is the first to look at the consequences of an important regulatory phenomenon and its impact on competition. The results at the confluence of regulation and competition policies have potential applications across the world.
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