System Building at the Margin: The Problem of Public Choice in the Telephone Industry

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Abstract
This article considers whether natural monopoly conditions or AT'T's market power was responsible for the formation of a single, standardized network in the United States telephone industry. It shows that AT&T was able to move the industry towards a single system under its management through a strategy of competition and compromise with competitors. The article also examines the impact of AT's actions on state regulators, concluding that public officials, lacking necessary knowledge and authority to set policy, ended up supporting AT's position in the industry.

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