How (and How Not) to Measure Market Power Over Business Data Services

The Federal Communications Commission recently outlined a “new path forward” for imposing price regulation on high-capacity telecommunications circuits sold to businesses and other telecommunications providers. The Commission outlines a two-step procedure for determining if it will apply rate regulation these Business Data Services: As a first step, the Commission proposes to determine “whether market power exist[s]” and where. If the Commission determines that market power exists, then the Agency proposes to apply a price-cap “style” regime to control prices. The problem, however, is that nowhere does the Commission define a meaningful concept of “market power.” To fill this gap, this Policy Paper from the Phoenix Center constructs a policy-relevant definition of market power. It then considers whether the Commission’s analysis is capable of identifying the presence of or quantifying the magnitude of market power for Business Data Services. It ultimately concludes that it is not. The Agency’s analysis is unsupported by basic economics and good statistics, and is thus incapable of providing any meaningful evidence regarding the presence or absence of market power.

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