class: center, middle, inverse, title-slide # 4.5: Natural Monopoly Regulation ## ECON 326 · Industrial Organization · Spring 2020 ### Ryan Safner<br> Assistant Professor of Economics <br> <a href="mailto:safner@hood.edu"><i class="fa fa-paper-plane fa-fw"></i> safner@hood.edu</a> <br> <a href="https://github.com/ryansafner/IOs20"><i class="fa fa-github fa-fw"></i> ryansafner/IOs20</a><br> <a href="https://IOs20.classes.ryansafner.com"> <i class="fa fa-globe fa-fw"></i> IOs20.classes.ryansafner.com</a><br> --- # Economies of Scale and Natural Monopoly I .pull-left[ - Recall: .hi-purple[economies of scale]: as `\(\uparrow q\)`, `\(\downarrow AC(q)\)` - .hi-purple[Minimum Efficient Scale (MES)]: `\(q\)` with the lowest `\(AC(q)\)` ] .pull-right[ <img src="4.5-slides_files/figure-html/unnamed-chunk-1-1.png" width="504" style="display: block; margin: auto;" /> ] --- # Economies of Scale and Natural Monopoly I .pull-left[ - Recall: .hi-purple[economies of scale]: as `\(\uparrow q\)`, `\(\downarrow AC(q)\)` - .hi-purple[Minimum Efficient Scale (MES)]: `\(q\)` with the lowest `\(AC(q)\)` - If MES is small relative to market demand... - .orange[AC] hits .blue[Market demand] during **diseconomies of scale**... ] .pull-right[ <img src="4.5-slides_files/figure-html/unnamed-chunk-2-1.png" width="504" style="display: block; margin: auto;" /> ] --- # Economies of Scale and Natural Monopoly I .pull-left[ - Recall: .hi-purple[economies of scale]: as `\(\uparrow q\)`, `\(\downarrow AC(q)\)` - .hi-purple[Minimum Efficient Scale (MES)]: `\(q\)` with the lowest `\(AC(q)\)` - If MES is small relative to market demand... - .orange[AC] hits .blue[Market demand] during **diseconomies of scale**... - .hi-purple[...can fit more identical firms into the industry!] ] .pull-right[ <img src="4.5-slides_files/figure-html/unnamed-chunk-3-1.png" width="504" style="display: block; margin: auto;" /> ] --- # Economies of Scale and Natural Monopoly I .pull-left[ - If MES is *large* relative to market demand... - .red[AC] hits .blue[Market demand] during **_economies_ of scale**... - .hi-purple[likely to be a single firm in the industry!] ] .pull-right[ <img src="4.5-slides_files/figure-html/unnamed-chunk-4-1.png" width="504" style="display: block; margin: auto;" /> ] --- # Economies of Scale and Natural Monopoly I .pull-left[ - If MES is *large* relative to market demand... - .red[AC] hits .blue[Market demand] during **_economies_ of scale**... - .hi-purple[likely to be a single firm in the industry!] - A .hi[natural monopoly] that can produce higher `\(q^*\)` and lower `\(p^*\)` than a competitive industry! ] .pull-right[ <img src="4.5-slides_files/figure-html/unnamed-chunk-5-1.png" width="504" style="display: block; margin: auto;" /> ] --- # Natural Monopoly .pull-left[ .center[  ] ] .pull-right[ - Tend to have very high fixed costs, very low marginal costs (variable costs) - Implies a downward sloping average cost curve - Tend to be industries regulated as .hi-purple[public utilities] (gas, water, electric power) or .hi-purple[common carriers] (public transportation, telecommunications) ] --- # Natural Monopoly: Weak Case .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-6-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - .hi-purple[Weak natural monopoly] - `\(p=AC\)` at .hi-purple[diseconomies of scale] - Marginal cost pricing can be profitable and efficient - Producing `\(q_c\)` where `\(p=MC\)`, still above `\(AC(q)\)` ] --- # Natural Monopoly: Weak Case .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-7-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - This is an .hi-purple[unsustainable] natural monopoly: a second firm can profitably enter - Lowest price incumbent could break-even at is `\(p_{AC}\)` - Entrant could profitably enter, produce `\(q_{MES}\)` and charge a price between `\(AC_{min}\)` and `\(p_{AC}\)` (incumbent's price) - Incumbent would lose `\((q_{MES})\)` customers ] --- # Natural Monopoly: Strong Case .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-8-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - .hi-purple[Strong natural monopoly] - `\(p=AC\)` at .hi-purple[economies of scale] - Marginal cost pricing *is not* profitable - Producing `\(q_c\)` where `\(p=MC\)`, is below `\(AC(q)\)` ] --- # Natural Monopoly: Strong Case .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-9-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - A .hi-purple[sustainable] natural monopoly: a second firm *cannot* profitably enter - Lowest price incumbent could break-even at is `\(p_{AC}\)`: .hi-purple[Nash Equilibrium] - Entrant could not profitably enter ] --- class: inverse, center, middle # Regulating Natural Monopolies --- # Do We *Need* To Regulate Natural Monopoly? .left-column[ .center[  .smallest[ Harold Demsetz 1930-2019 ] ] ] .right-column[ .smaller[ > "If, because of production scale economies, it is less costly for one firm to produce a commodity in a given market than it is for two or more firms, then one firm will survive; if left unregulated, that firm will set price and output at monopoly levels; the price-output decision of that firm will be determined by profit maximizing behavior constrained only by the market demand for the commodity...The theory of natural monopoly is deficient for it fails to reveal the logical steps that carry it from scale economies in production to monopoly price in the market place," (p.56). ] .source[Demsetz, Harold, 1968, "Why Regulate Utilities?" *Journal of Law and Economics* 11(1): 55-65] ] --- # Do We *Need* To Regulate Natural Monopoly? .left-column[ .center[  .smallest[ Harold Demsetz 1930-2019 ] ] ] .right-column[ .smallest[ > "Why must the unregulated market outcome be monopoly price? The competitiveness of the bidding process depends very much on such things as the number of bidders, but there is no clear or necessary reason for *production* scale economies to decrease the number of *bidders.* Let prospective buyers call for bids to service their demands...There can be many bidders and the bid that wins will be the lowest. The existence of scale economies in the production of the service is irrelevant to a determination of the number of rival bidders. If the number of bidders is large or if, for other reasons, collusion among them is impractical, the contracted price can be very close to per-unit production cost," (p.57). ] .source[Demsetz, Harold, 1968, "Why Regulate Utilities?" *Journal of Law and Economics* 11(1): 55-65] ] --- # Do We *Need* To Regulate Natural Monopoly? .left-column[ .center[  .smallest[ Harold Demsetz 1930-2019 ] ] ] .right-column[ - If competition *within* the market is inefficient (natural monopoly), competition *for* the market (to be the sole producer) might be efficient - .hi-purple[Franchise-bidding] for public utilities: - government can auction off a monopoly contract to the lowest bidder - bids are price at which output is sold ] --- # Do We *Need* To Regulate Natural Monopoly? .left-column[ .center[  .smallest[ Harold Demsetz 1930-2019 ] ] ] .right-column[ - Replicates a perfectly contestable market: - Nash equilibrium: lowest bidder sets `\(p=MC\)` or `\(p=AC\)` to drive `\(\pi\)` to 0 - Government can choose or randomize in the case of ties - Must make sure collusion is costly (or prevent it) ] --- # Price Regulation: Weak Case .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-10-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - Ignore franchise bidding possibility - Suppose government permits a single firm to be a natural monopoly ] --- # Price Regulation: Weak Case .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-11-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - If left to own devices, act like a monopoly - Restrict output to `\(q_M\)` where `\(MR=MC\)` - Mark up price to consumers' max WTP: `\(p_M\)` - Small .hi-blue[consumer surplus] - Earns .hi-green[profits] - Generates **DWL** ] --- # Price Regulation: Weak Case .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-12-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - Government can set price regulation - .hi-purple[First best price]: `\(p=MC\)` - Possible in weak case, since `\(AC<MC\)` where `\(p=MC\)` - .hi-purple[Allocatively efficient]: `\(p=MC\)` - No deadweight loss - Monopolist even earns profits! - Would not be .hi-purple[sustainable] unless government protecting from entry ] --- # Price Regulation: Strong Case .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-13-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - If left to own devices, act like a monopoly - Restrict output to `\(q_M\)` where `\(MR=MC\)` - Mark up price to consumers' max WTP at `\(p_M\)` - Small .hi-blue[consumer surplus] - Earns .hi-green[profits] - Generates **DWL** ] --- # Price Regulation: Strong Case .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-14-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - Government can set price regulation - .hi-purple[First best price]: `\(p=MC\)` - *Unprofitable* in strong case, since `\(AC>MC\)` where `\(p=MC\)`! - Government could provide a .hi-purple[subsidy] to monopolist (of size of losses at `\(q_{MC})\)` ] --- # Price Regulation: Strong Case .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-15-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - .hi-purple[Second best price]: `\(p=AC\)` - Allocatively inefficient `\((p>MC)\)`, some **deadweight loss** - More .hi-blue[consumer surplus] - No .hi-green[profit] for monopoly - But, *more* incentive for monopolist than first-best marginal cost pricing - At least breaks even ] --- # Price Regulation: Rate of Return Regulation .pull-left[ <img src="4.5-slides_files/figure-html/unnamed-chunk-16-1.png" width="504" style="display: block; margin: auto;" /> ] .pull-right[ - .hi-purple[Rate of return regulation]: government and monopoly agree to set a small `\(p>AC\)` to ensure some small profit - "reasonable return on capital" - More incentive for monopolist to produce in this market ] --- # Price Regulation: Rate of Return Regulation .pull-left[ .center[  ] ] .pull-right[ - Rate of regulation is a type of .hi-purple["cost plus" regulation] - Monopolist reports its average cost, and government allows it to set a slightly higher price to generate small profit - .hi-purple[Averch-Johnson effect] or .hi-purple["gold plating"]: monopolist has incentive to overreport costs, overinvest in capital to raise its reported average costs (so government allows a price increase) .source[Averch, Harvey and Leland L Johnson, 1962, "Behavior of the Firm Under Regulatory Constraint," *American Economic Review* 52 (5): 1052–1069] ] --- # Rationales for Regulation: Public Interest .pull-left[ .center[  ] ] .pull-right[ - .hi-purple[Public interest] rationale: regulation industries to benefit consumers, provide .hi-purple["common carriers"] - Lower prices, increase output, increase quality, prohibit price discrimination - Avoid .hi-purple["excessive duplication"] from inefficient competition - Achieve allocative and productive efficiency ] --- # Rationales for Regulation: Rent-Seeking .left-column[ .center[  .smallest[ George Stigler 1911-1991 Economics Nobel 1982 ] ] ] .right-column[ - All groups desire to use the State to protect their interests (create a rent) - Direct .hi[subsidies] boost profits but can induce **entry** into the industry - dilutes profits/rents - Control of entry reduces competition and increases rents to incumbents - Olsonian problem: More organized industries fare better in controlling politics than less organized .source[Stigler, George J, (1971), "The Theory of Economic Regulation," *Bell Journal of Economics and Management Science* 3:3-21] ] --- # The Theory of Economic Regulation .left-column[ .center[  .smallest[ George Stigler 1911-1991 Economics Nobel 1982 ] ] ] .right-column[ > "[A]s a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits," (p.3). > "[E]very industry or occupation that has enough political power to utilize the state will seek to control entry. In addition, the regulatory policy will ofeten be so fashioned as to retard the rate of growth of new firms," (p.5). .source[Stigler, George J, (1971), "The Theory of Economic Regulation," *Bell Journal of Economics and Management Science* 3:3-21] ] --- # Regulatory Capture .pull-left[ .center[  ] ] .pull-right[ - .hi[Regulatory capture]: a regulatory body is "captured" by the very industry it is tasked with regulating - Industry members use agency to further their own interests - Incentives for firms to design regulations to harm competitors - Legislation & regulations written by lobbyists & industry-insiders ] --- # Regulatory Capture .pull-left[ .center[  ] ] -- .pull-right[ .center[  ] ] -- .center[ Source: [Larry Lessig](https://twitter.com/lessig/statuses/149664244357541888) ] --- # The Revolving Door .pull-left[ .center[  ] ] .pull-right[ - One major source of capture is the .hi-purple["revolving door"] between the public and private sector - Legislators & regulators retire from politics to become highly paid consultants and lobbyists for the industry they had previously "regulated" ] --- class: inverse, center, middle # An Example: AT&T --- # The Telephone .pull-left[ .center[  ] ] .pull-right[ - 1876: Alexander Graham Bell invents and patents the telephone - 1877: Bell Telephone Company founded to manage Bell's patents - 1889: Mergers create the American Telephone and Telegraph Company (AT&T) ] --- # The Bell System .pull-left[ .center[  ] ] .pull-right[ .smaller[ - "Bell System" of frachisees and associated companies managed by "Ma Bell", referred to generally as AT&T - Key divisions of AT&T - AT&T Long Lines (long distance calling and interconnection of local exchanges) - Western Electric (equipment manufacturing) - Bell Labs (famous research & development) - Bell operating companies (local telephone exchanges) ] ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smaller[ > "Most legislators, academics, and many othersbelieve the telephone industry is a natural monopoly that was privately monopolized by the aggressive actions of the American Telegraphand Telephone Company (AT&T). That was hardly the case. Although AT&T undoubtedly encouraged the monopolization of the industry,it was the actions of regulators and federal and state legislators that eventually led to the creation of a nationwide telephone monopoly," (p.267) ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ "Specifically, three forces drove the monopolization process: 1. The intentional elimination of what was considered wasteful or duplicative competition through exclusionary licensing policies, misguided interconnection edicts, protected monopoly status for dominant carriers, and guaranteed revenues for those regulated utilities; 2. The mandated social policy of universal telephone entitlement, which implicitly called for a single provider to easily carry out regulatory orders; and; 3. The regulation of rates (through rate averaging and cross-subsidization) to achieve the social policy objective of universal service. The combined effect of those policies was enough to kill telephone competition just as it was gaining momentum," (pp.267-268). ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ > "[T]elephone service traditionally has required laying an extensive cable network, constructing numerous call switching stations, and creating a variety of support services, before service could actually be initiated. Obviously, with such high entry costs, new firms can find it difficult to gain a toehold in the industry. Those problems are compounded by the fact that once a single firm overcomes the initial costs, their average cost of doing business drops rapidly relative to newcomers," (p.268) ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ > "Overlooked in the textbooks is the extent to which federal and state governmental actions throughout this century helped build the AT&T or 'Bell system' monopoly...Despite the popular belief that the telephone network is a natural monopoly, the AT&T monopoly survived until the 1980s not because of its naturalness but because of overt government policy...Once the government allowed this monopoly to develop with its assistance, AT&T's strength could not be matched by any competitor, resulting in a monopolistic market structure that survived well into the 1980's," (pp.268-269). ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # The Early History of AT&T .center[  ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ > "Despite AT&T’s rapid rise to market dominance, independent competitors began springing up shortly after the original patents expired in 1893 and 1894. These competitors grew by servicing areas not served by the Bell System, but then quickly began invading AT&T’s turf, especially areas where Bell service was poor...By 1907, non-Bell firms continued to develop and were operating 51 percent of the telephone businesses in local markets. Prices were driven down as many urban subscribers were able to choose among competing providers...Whereas AT&T had earned an average return on investment of 46 percent in the late 1800s, by 1906 their return had dropped to 8 percent," (p.270). ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ > "After seventeen years of monopoly, the United States had a limited telephone system of 270,000 phones concentrated in the centers of the cities, with service generally unavailable in the outlying areas. After thirteen years of competition, the United States had an exten- sive system of six million telephones, almost evenly divided between Bell and the independents, with service available practically anywhere in the country," (p.271) ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ > "[CEO Theodore] Vail’s most important goals upon taking over AT&T were the elimination of competitors, the befriending of policymakers and regulators, and the expansion of telephone service to the general public...AT&T adopted a new corporate slogan as part of an extensive advertising campaign: “One Policy, One System, Universal Service" ... Vail began acquiring a number of independent telephone competitors, as well as telegraph giant Western Union. However, the government made it known quickly that such activity was suspect under existing antitrust statutes," (p.272). ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ > "Vail decided to enter an agreement that would appease governmental concerns while providing AT&T a firm grasp on the industry. On December 19, 1913, the “Kingsbury Commitment” was reached...the agreement outlined a plan whereby AT&T would sell off its $30 million in Western Union stock, agree not to acquire any other independent companies, and allow other competitors to interconnect with the Bell System...[and] require[d] that an equal number [of telelphones] be sold to an independent buyer for each system AT&T purchased...This provision allowed Bell and the independents to exchange telephones in order to give each other geographical monopolies. So long as only one company served a given geographical area there was little reason to expect price competition to take place...interconnection...eliminated the independents' incentive to establish a competitive long-distance system" (pp.272-273). ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # 1913 Kingsbury Commitment .pull-left[ .center[  ] ] .pull-right[ - To avoid antitrust scrutiny (DOJ wanted to vertically break up AT&T): - AT&T would divest its control of Western Union and allow independent (non-Bell) companies to .hi-purple[interconnect] with AT&T's long distance network ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ > "Legislators began referring to competition in the same terms as Vail—'duplicative,' 'destructive,' and 'wasteful'...[The] prevailing [government] sentiment [was that], 'Competition resulted in duplication of investment.... The policy of the state was to eliminate this by eliminating as far as possible, duplication.' Many state regulatory agencies began refusing requests by telephone companies to construct new lines in areas already served by another carrier and continued to encourage monopoly swapping and consolidation in the name of 'efficient service'" ... "Vail chose at this time to put AT&T squarely behind government regulation, as the quid pro quo for avoiding competition. This was the only politically acceptable way for AT&T to monopolize telephony..." (p.274). ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ > "On August 1, 1918, in the midst of World War I, the federal government nationalized the entire telecommunications industry for national security reasons...The federal government...agreed to pay to AT&T 4.5 percent of the grossoperating revenues of the telephone companies as a service fee; to make provisions for depreciation and obsolescence at the high rate of 5.72 percent per plant; to make provision for the amortization of intangible capital; to disburse all interest and dividend requirements...Finally, AT&T was given the power to keep a constant watch on the government’s performance..." (p.275-276). ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ > "In addition, once the nationalized system was in place, AT&T wasted no time applying for immediate and sizable rate increases. High service connection charges were put into place for the first time. AT&T also began to realize it could use the backing of the federal government to coax state commissions into raising rates. In addition, once the nationalized system was in place, AT&T wasted no time applying for immediate and sizable rate increases. High service connection charges were put into place for the first time. AT&T also began to realize it could use the backing of the federal government to coax state commissions into raising rates...By January 21, 1919, just 5.5 months after nationalization, longd istance rates had increased by 20 percent," (p.276-276). ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # The Early History of AT&T .left-column[ .center[  Adam Thierer ] ] .right-column[ .smallest[ > "During this period of government ownership, the decision was made to set standard long-distance rates throughout the country, based on average costs, In other words, subscribers calling from large cities would pay above costs in order to provide a subsidy to those in rural areas. So, early in the century cross-subsidization began, embraced by the industry...The intention of this action was obvious—Vail’s vision of a single, universal service provider was being adopted and implemented by the government through discriminatory rate structuring," (p.276-277). ] .source[Thierer, Adam, 1994, "Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly," *Cato Journal* 14(2): 267-285] ] --- # 1934 Telecommunications Act and FCC .pull-left[ .center[  ] ] .pull-right[ - 1934 Telecommunications Act - Creates the Federal Communications Commission (FCC) .smaller[ > "for the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States a rapid, efficient, Nation-wide, and world-wide wireand radio communication service with adequate facilities at reasonable charges." ] ] --- # 1934 Telecommunications Act and FCC .pull-left[ .center[  ] ] .pull-right[ - FCC has power to restrict entry into the market - Competitors are required to obtain from FCC a "certificate of public convenience and necessity" - Avoid "wasteful duplication" and "unneeded competition" - Create and regulate .hi-purple[common carriers] for wireline (telephone, cable, later internet) and wireless (radio, later cellular) ] --- # United States v. AT&T .pull-left[ .center[  ] ] .pull-right[ .smallest[ - In 1970s FCC suspected AT&T was using monopoly profits from its Western Electric subsidiary to subsidize the costs of its network - DOJ brought a monopolization case against AT&T in 1972 ] ] --- # United States v. AT&T .pull-left[ .center[  ] ] .pull-right[ - 1982: AT&T and Government finalize a consent decree: - Breakup of Bell system: AT&T's member telephone companies broke up into separate "Baby Bells" companies^.magenta[1] - AT&T keeps Western Electric, half of Bell Labs, and AT&T Long Distance ] .footnote[ ^.magenta[1] Most of which have since merged into Verizon, Sprint, and today's AT&T ] --- # Getting the Band Back Together .center[  ]