This paper aims to evaluate the impact of competitor entry on efficiency outcome in two‐sided network context.
The context is the population of incumbent firms making up the local exchange segment of the telecommunications industry in the US over a 14‐year period from 1988 to 2001.
The results show that encouraging the entry of competitors had led quite substantially to the enhancement of efficiencies for the incumbent firms.
A policy conclusion would be to enhance the incentives for new firms to enter two‐sided markets and also suppress anti‐competitive behavior by incumbents in such contexts with a firm hand so as to enhance efficiency levels.
This is a comprehensive analysis of policy changes in one of the world's largest telecommunications markets and the results have applicability across several other country contexts.
