Auriol, Emmanuelle: Advertising and Regulation of the US Local Telephone Markets
World Conference Econometric Society, 2000, Seattle

Emmanuelle Auriol, Universite de Sciences Sociales Toulouse I
Marc Ivaldi, EHESS and GREMAQ-IDEI
Advertising and Regulation of the US Local Telephone Markets
Session: C-3-9  Saturday 12 August 2000  by Auriol, Emmanuelle
We examine the advertising behaviour of regulated monopolies in the US local telephone market. We show, in theoretical part, how asymmetric information affects regulated firms'production and advertising provision, then derive the optimal regulation policy.
We show, in empirical work, that traditional view about advertising cannot be applied to the industry according to testing Dorfman-Steiner model and rejecting it. The optimal advertising level and consumer's dead weight loss are calibrated in asymmetric information framework. A strong evidence of excessive advertising is observed in the market. In addition, the utilities under price-cap regulation are found to make more advertising than those under cost-plus regulation in this industry.


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