Was PLDT a natural monopoly? An economic analysis of pre-reform Philippine telecoms

Telecommunications Policy

Volumn 22, Issue 4-5, 1998, Pages 359-370

  Serafica, Ramonette B ^a  

^a Philippine Institute for Development Studies   (Philippines)

Author keywords

[No Author keywords available]

Indexed keywords

COSTS; ECONOMICS; LAWS AND LEGISLATION; PUBLIC POLICY; TELEPHONE SYSTEMS;

MONOPOLY; PHILIPPINE LONG DISTANCE TELEPHONE COMPANY; PHILIPPINE TELECOMS;

TELECOMMUNICATION SERVICES;

EID: 0032067214     PISSN: 03085961     EISSN: None     Source Type: Journal    
DOI: 10.1016/S0308-5961(98)00015-9     Document Type: Article

References (25)

1. See Aquino, T., The Philippines. In Telecommunications in the Pacific Basin: An Evolutionary Approach, Eli Noam et al., eds., University Press, New York, (1994), for a historical review of the development of the telecommunications sector.
2. Smith, P., Philippines: the telecommunications sector. In Telecommunications Sector Reform in Asia: Working Papers, ed. Smith and G. Staple. The World Bank, 1994.
3. Arroyo, D., Access to basic utilities. Social Weather Bulletin, 1990, 90 (9).
4. Gavino, Jr, J., A Critical Study of the Regulation of the Telephone Utility: Some Options for Policy Development. Ph.D. diss., University of the Philippines, 1992.
5. Manapat, R, Wrong Number: The PLDT Telephone Monopoly Animal Farm Series, Manila, 1992.
6. Esfahani, H. S., Regulations, institutions, and economic performance: the political economy of the Philippines' telecommunications sector'. Policy Research Working Paper #1294, The World Bank, Washington, D.C., (1994).
7. Ref. 2, p. 53.
8. Baumol, W., Panzar, J. and Willig, R., Contestable Markets and the Theory of Industry Structure, revised edition. Harcourt Brace Yovanovich, New York, 1986.
9. Baumol, W., on the proper cost tests for natural monopoly in a multi in a multi-product industry. American Economic Review, 1977, 85(5), 1037-1048.
10. Ref. 8, p.
11. Teece, D., Towards an economic theory of the multi-product firm. Journal of Economic Behavior and Organization, 1982, (3), 39-63.
12. See for example Roler, L., proper quadratic cost functions with an application to the Bell system. The review of Economics and Statistics, 1990a, 72, 202-210,
13. Roller, L., Modeling cost structure: the system revisited. Applied Economics 1990b, 22, 1661-74,
14. and Charnes, A., Cooper, W. and Sueyoshi, W., A goal programming approach/constrained regression review of the Bell system breakup, Management Science, 1988, 34 (1), 1-26.
15. Snow, M., Testing for natural monopoly in telecommunications systems and networks. In: International Communication: A Trade and Development Perspective - Essays in Honour of Meheroo Jussawala, D. M. Lamberton (ed.), New York, Hampton Press, 1996.
16. Christensen, L and Greene, W., Economies of scale in U.S. electric power generation. Journal of Political Economy, 1976, 84 (4), 655-676.
17. For this article, we use the Philippine Treasury Bill as a proxy for the interest rate.
18. Zellner, A., An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias. Journal of the American Statistical Association, 1962, 57 (298), 348-368.
19. Evans, D. and Heckman, J., Multi-product cost function estimates and natural monopoly tests for the Bell system. In Breaking Up Bell: Essays on Industrial Organization and Regulation, D. S. Evans ed., Elsevier, Amsterdam, 1983 and
20. Evans, D. and Heckman, J., A test for subadditivity of the Cost Function with an Application to the Bell system, American Economic Review, 1984, 74, 615-623.
21. In addition to the empirical tests mentioned earlier, other researchers who have used this technique include Snow, M., An economic issue in international telecommunications: Natural monopoly in commercial satellite systems. In M. Macauley ed. Economics and Technology in U.S. Space Policy, Resources for the Future, Inc., 1987 and
22. Shin, R and Ying, J. Unnatural monopolies in local telephone. The Rand Journal of Economics, 1992, 23(2), 171-183.
23. Note that this is similar to the definition by Baumol et al. but applied to a two-output case.
24. As noted by Evans and Heckman, a cost minimizing firm will never produce an output configuration at which the cost function is superadditive, unless there are firm-specific fixed factors. As such, the test focuses on testing between local additivity and local subadditivity.
25. As suggested in a World Bank study conducted by Esfahani that was cited earlier. 22 For a discussion of the current set-up of the industry, see Serafica, R., An economic analysis of the Service Area Scheme, Philippine Review of Economics and Business (forthcoming).