The Welfare Impact of Competition in Fixed Telephony
In Portugal, fixed telephony was liberalized in 2000. In this article, we estimate the impact on prices and consumer welfare of the liberalization process. We use a panel of household level data to estimate a structural model of demand for duration and number of calls of fixed telephony services. We focus on local and national peak period calls. The demand for duration is inelastic. Given these estimates, we perform several simulation exercises. Our results indicate that the per consumer average monthly gain of switching from the basic tariff plan of the incumbent to an alternative tariff plan is of about 70 cents. For some consumers, these gains could be as large as 2 euros.
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