Two essays on industrial organization

Essay one: The effect of price cap regulation on competition and the incumbent firm in US local telephone markets. This paper incorporates price cap regulation into the dominant firm and competitive fringe (DF-CF) model and shows that price cap regulation impedes the development of the competitive fringe and helps the regulated incumbent exchange carrier to maintain its dominance over local telephone markets. Using the fixed effects model, this paper also shows that price cap regulation has a negative effect on the amount of numbering codes assigned to Competitive Local Exchange Carriers (CLECs) and a positive effect on those assigned to Incumbent Local Exchange Carriers (ILECs) each year in US local telephone markets. Based on these facts, this paper proposes that the large scale adoption of price cap regulation by state public commissions contributes to the slow development of competition in US local telephone markets following the landmark passage of the Telecommunications Act of 1996.; Essay two: The competitive effects of vertical partial ownership acquisition. In a Cournot game frame, this paper shows that a firm can use vertical partial ownership to increase its market share. Vertical partial ownership acquisition increases the output of the acquiring firm and decreases that of rival firms. The magnitude of output changes increases as the number of partially acquired firms and the percentage of partial ownership acquired increases. The total industry output of the final good increases immediately after forward partial ownership acquisition and remains unchanged for the case of backward partial ownership acquisition. Even though consumer welfare is not negatively affected by the immediate result of vertical partial ownership acquisition, vertical partial ownership acquisition is still of antitrust concern because large scale acquisitions of vertical partial ownership will result in more concentrated market structure and less output. This will in turn negatively affect consumer welfare in the future.