| The U.S. long distance industry is a compelling environment in which to study firm and industry dynamics and the role of vertical integration. Hundreds of new firms have entered the retail portion of this industry. These firms exhibit an array of organizational forms, ranging from highly integrated to completely segmented. This dissertation chronicles the technological, regulatory, and competitive developments in this industry from the AT&T divestiture in 1984 through 1996. Using an original panel that tracks local entry and exit, investment in switching and transmission facilities, line counts, and mergers and acquisitions for every long distance retailer in every U.S. market between 1989 and 1996, it identifies the patterns of market presence and firm growth conditional on organizational form.; The first chapter provides a basic introduction to the technology, wholesale contracting practices, and body of empirical literature regarding long distance telephony. The second chapter details the federal laws and regulations that drove AT&T to accept the competitive entry of rival retailers providing service with capacity on the AT&T network and motivated the variety in organizational form among these new entrants. The third chapter establishes the basic descriptive facts regarding entry, exit, line growth, and merger behavior of different organizational forms and analyzes what those facts reveal about how long distance retailers evolved over time. These facts provide insight into the advantages and disadvantages of vertical integration in multi-market; network industries. The fourth chapter further examines these empirical regularities through parameter estimates from a set descriptive regressions that endogenize local market presence and line growth as a function of investments (both own and rival), the state regulatory regime, and local market characteristics.; Among long distance retailers, organizational form is the most critical characteristic for explaining firm evolution and growth. Although the industry remained highly concentrated, market share growth between 1989 and 1996 was dominated by the most and least vertically integrated firms. A primary focus of this dissertation is identifying why partial vertical integration proved to be a less successful organizational form in comparison to full integration and nonintegration. |
