Solution for Managerial Economics 4th Edition Chapter 23, Problem 1

by Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
147 Solutions 23 Chapters 104009 Studied ISBN: 9781305259331 Economics 5 (1)

Chapter 23, Problem 1 : 23-1 Local Phone Companies State utility...

23-1 Local Phone Companies

State utility commissions typically regulate local phone companies, but local phone companies also offer long-distance service to their customers. Rival long-distance carriers also connect to local phone lines to provide long-distance service to customers. Recently, the rival long-distance carriers have complained that the local phone company repair persons have put peanut butter on rival long-distance carriers’ phone lines to encourage rats to eat through the lines. If true, why is this a profitable strategy?

Step-By-Step Solution

23-1 If the local phone company can exclude rival long distance carriers from the market, it can evade local phone regulation by charging more for long distance service.   This allows it to realize some of the profit in long distance that it could have earned on local service, but for the regulated local phone rates.


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