The Effects of International Simple Resale on Prices in InternationalTelecommunications Markets

This paper empirically investigates the effect of international simpleresale (ISR) authorization on the prices for international messagetelephone service (IMTS). We compile a firm-level panel data set forover 200 United States-foreign country bilateral markets from 1995 to2004. These data provide detailed information on prices, variable costs,fixed costs and market shares for 75 firms for each bilateral market, aswell as the timing of ISR authorization by the Federal CommunicationsCommission for each bilateral market. Estimates from adifference-in-differences model show that ISR authorization, and theassociated lowering of barriers to entry, almost always results in lowerprices for all markets. Additionally, we find evidence that ISRauthorization alters the relationship between market concentration andprice. Prior to ISR authorization more concentrated markets have higherprices. ISR authorization dampens this effect and in some cases reversesthe relationship so that market concentration is negatively correlatedwith IMTS prices set by incumbent firms.