Regulation in Vertically-Related Industries: Myths, Facts, and Policy

This paper explains why conclusions that appear to be “facts” can truly be “myths” in industries like today’s telecommunications industry, where key suppliers operate in multiple vertical stages of production. The paper explains, for example, why an entrant’s decision to make or buy critical production inputs may be largely insensitive to the price of these inputs. It also reviews why a vertically-integrated producer (VIP) may prefer to assist, rather than disadvantage, retail rivals, and why a VIP may be disadvantaging rivals even when it provides them with the same wholesale service quality that it provides to its own retail affiliate.