Will access regulation work? (The Enduring Lessons of the Breakup of AT&T: A Twenty-Five Year Retrospective)

(2.) The focus here, and throughout this paper, is economic regulation, in which a regulator controls the price, entry, and investment decisions of all market participants. This is in contrast to so-called social regulation, such as environmental regulation, occupational safety and health, banking, and air safety regulations, which are not the focus of this paper.

(3.) James Q. Wilson, The Dead Hand of Regulation, THE PUBLIC INTEREST, Fall 1971, at 39.

(4.) A good starting point in the vast scholarship on regulation is JAMES Q. WILSON, THE POLITICS OF REGULATION (1980). A very simple model of how even "perfect" political regulation of a natural monopoly can be significantly more inefficient than unconstrained monopoly is in Gerald R. Faulhaber, Voting on Prices: The Political Economy of Regulation, in INTERCONNECTION AND THE INTERNET: SELECTED PAPERS FROM THE 1996 TELECOMMUNICATIONS POLICY RESEARCH CONFERENCE, 275 (Greg Rosston & David Waterman eds., 1997).

(5.) United States v. Terminal R.R. Ass'n, 224 U.S. 383 (1912).

(6.) Blue Cross & Blue Shield United of Wis. v. Marshfield, 65 F.3d 1406, 1412 (7th Cir. 1995).

(7.) As a practical matter, virtually all regulators created price distortions away from efficient pricing, allegedly for "social" reasons, or more likely, political reasons. Thus, achieving efficient prices may not have actually been an objective of regulators, although it is their oft-proclaimed goal.

(8.) See Gerald R. Faulhaber, Policy-Induced Competition: the Telecommunications Experiments, 15 INFO. ECON. & POL'Y 73 (2003).

(9.) See supra note 7.

(10.) This is not to say that CLECs were otherwise efficient firms who were laid low by ILEC regulatory machinations. The rather sorry story of the incompetence of at least some CLECs is thoroughly explored in MARTIN F. MCDERMOTT III, CLEC TELECOM ACT 1996: AN INSIDER'S LOOK AT THE RISE AND FALL OF LOCAL EXCHANGE COMPETITION (2002).

Gerald R. Faulhaber, Professor Emeritus of Business and Public Policy, and Management, Wharton School, University of Pennsylvania, and Professor Emeritus, Penn Law School.

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