An Analysis of Telephone Company Entry into Unregulated Markets: The Electronic Security Case

• Author: Andrew J. Buck,Erwin Blackstone,Simon Hakim
• Published date: 01 September 1994
• DOI: 10.1177/0003603X9403900304
• Date: 01 September 1994
• Subject Matter: Economic

The Antitrust Bulletin/Fall 1994

An analysis

of

telephone company

entry into unregulated markets:

the electronic security case

BY ERWIN BLACKSTONE, ANDREW J. BUCK,

and SIMON HAKIM*

1. Introduction

727

Since 1984 we have had a district court judge making public pol-

icy with regard to the entry

of

the Regional Bell Operating Com-

panies (RBOCs) into information-based service industries. For the

most part, the debate about appropriate public policy, and who

should have responsibility for its formulation, has been quite gen-

eral. Opponents

of

entry

have

raised concerns about

possible

cross-subsidization and the concomitant opportunity for abuse

of

monopoly power. Proponents of RBOC entry have cited the

myriad

possibilities

for

new

information

services

like

those

afforded by the French telecommunications system.

* All three authors are Professor of Economics, Temple University,

Philadelphia, PA.

AUTHORS' NOTE: We would like to thank several anonymous referees

of

this journal

for

their very helpful comments.

©1994 by Federal Legal Publications, Inc.

728 .. The antitrust bulletin

The breakup of AT&T traded a national monopoly for a num-

ber

of

regional monopolies, the RBOCs. The competitive elec-

tronic security industry generates and processes

data

that

are

carried by the RBOCs. The technology used by the RBOCs and

the electronic security industry is quite similar. In contemplating

entry into electronic security by the RBOCs one must evaluate the

likely (anti-) competitive impact.

In

this

article

we

consider

a

specific

case:

RBOC

entry

into the electronic security industry. Traditionally, the evalua-

tion would include an assessment

of

whether such entry would

afford an opportunity for monopolization by the new entrant. The

analysis would hinge on product and geographic market defini-

tions and on the behavior exhibited by incumbent firms. Embed-

ded

in

such

analyses

are a

number

of

implicit

assumptions.

Namely, there are assumed to be no public good aspects to the

goods markets, there are no externalities, and there are no comple-

mentarities in consumption and production between the market in

question

and

other

markets.

Under

these

assumptions,

new

entrants will not reduce consumer welfare.

The electronic security industry provides anovel benchmark

for RBOC entry into information-based industries because many

of

the usual assumptions are not valid. There are two sources of

externalities

in

the

consumption

of

electronic

security. First,

neighborhoods in which a high proportion

of

homes have alarms

have

lower

burglary

rates.

Second,

afalse

alarm

reduces

the

police services available for consumption by other households in

the community.

If

the electronic security industry is already competitive and

affords no opportunities for monopolization, then there should be

no reason to bar RBOC entry. However, there may be other issues,

the assumptions outlined above, connected with RBOC entry that

may reduce consumer welfare. The purpose of the present article

is to consider the usual monopolization arguments as well as the

ancillary

issues

that

are

common

to

other

information-based

industries from which the RBOCs have been

denied

entry. In