NETWORK STRUGGLES: RE-WIRING U.S. NETWORK INDUSTRIES FOR COMPETITION, 1970 - 2015

Abstract

Since the late 19th century, the competitive provision of large scale infrastructure like railroading or telecommunications were defined by widely acknowledged market failures including natural monopoly. These competitive malfunctions led to public utility-style regulation for these industries in which regulators determined market entry, exit, prices, and service options for regulated firms. Beginning in the 1970s, the economic deregulation movement vowed to reintroduce market competition to industries dominated by regulated monopolies and cartels. Now four decades later, many deregulated industries have—contrary to expectations—grown more concentrated and less competitive. Comparing the deregulation of freight railroading and wireline telecommunications in the United States, this dissertation offers a historically grounded explanation for the emergence of deregulated market power.

I highlight a common dilemma in such infrastructure industries. To compete, network service providers must have network access to end customers. To the extent network access is concentrated in the hands of a few incumbents, potential rivals with limited network assets of their own operate at a distinct disadvantage in entering new markets.

Recognizing these challenges, policymakers have adopted different solutions to problems of concentrated network access. In freight railroading, policymakers encouraged intermodal competition between rival transportation modes (railroad versus truck, barge, or pipeline). In wireline telecommunications, policymakers by contrast encouraged the sharing of incumbent networks with competitors. The origins of these different network access regimes were rooted in how each industry was deregulated differently in response to different industry problems. As such, deregulation followed an industry-specific logic. In freight railroading, the bailout of bankrupt carriers permitted greater network consolidation. In wireline telecommunications, efforts to undo the historically unprecedented telephone monopoly of AT&T led to greater network fragmentation.