In this article, we estimate the degree of market power held by AT&T in the interstate long-distance market in the postdivestiture period. Our approach makes use of the dominant firm/competitive fringe model to impose the structure needed both to obtain estimates of the relevant structural parameters and to translate these parameters into an estimate of AT&T's residual demand elasticity and associated Lerner index. Because of the continued presence of regulation and other considerations, however, a direct estimation of the residual demand elasticity is not feasible. Consequently, we take a more indirect approach that combines estimation of the elasticity of fringe firm supply, market demand estimation, and extant market share data to generate estimates of the desired elasticity. The resulting estimates strongly support the conclusion that AT&T lacks significant market power in the postdivestiture long-distance market. * The authors would like to thank John Jackson, Michael Ward, Sam Peltzman, an unnamed editor, and the anonymous referees for valuable insights and comments on earlier versions of this article. We retain sole responsibility for any remaining errors.
<p class="MsoTitle" style="text-align: justify; line-height: normal; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-family: Times New Roman;"><span style="color: black; font-size: 10pt; font-weight: normal; mso-themecolor: text1;">Because of a dramatic decrease in transportation and telecommunication costs, the digital revolution, and the forces of globalization, off-shoring has accelerated in the past few years.<span style="mso-spacerun: yes;"> </span>While there is little doubt that off-shoring has brought hardship to thousands of workers and communities, there is also little doubt that it has benefited many worker and communities.<span style="mso-spacerun: yes;"> </span>Today, off-shoring continues to generate considerable debate on the long-run impact. Also, there is considerable misunderstanding about this phenomenon.<span style="mso-spacerun: yes;"> </span>In this paper, the authors make a distinction among the </span><span style="color: black; font-size: 10pt; font-weight: normal; mso-themecolor: text1; mso-bidi-font-weight: bold;">terms <span style="mso-bidi-font-style: italic;">outsourcing, offshore outsourcing, and off-shoring</span>.<span style="mso-spacerun: yes;"> </span></span><span style="color: black; font-size: 10pt; font-weight: normal; mso-themecolor: text1;">Off-shoring has been facilitated by a deconstruction of the value chain, allowing firms to evaluate all activities as potential candidates for being performed outside the firm.<span style="mso-spacerun: yes;"> </span>Reasons </span><span style="color: black; font-size: 10pt; font-weight: normal; mso-themecolor: text1; mso-bidi-font-weight: bold;">for the acceleration of off-shoring are outlined.<span style="mso-spacerun: yes;"> </span>An explanation of why off-shoring is not a villain for the developed economies is also provided</span><span style="color: black; font-size: 10pt; font-weight: normal; mso-themecolor: text1;">.</span></span></p>
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