Does a monopolist aim to maximize profit, or simply to hide from the antitrust laws?
AT&T's absolute monopoly in the switched long-distance telephone market ended in 1976 when MCI rolled out its Execunet service. Twenty years later economists still question whether AT&T can influence the market price of long-distance services.
Recent empirical studies are split on the question, sometimes finding AT&T has considerable market power, and sometimes finding it has none.
It appears that economists studying the long-distance industry may be misinterpreting the historical record. Rather than manipulating price for the sake of building profits, AT&T may have manipulated its market share for the sake of avoiding renewed regulatory and antitrust intervention.
The persistence of market power in deregulated markets is an important issue. Policymakers are engaged in transforming the local telephone monopoly into a competitive industry, a plan even more adventuresome and potentially more costly than opening the long-distance market. Couple that with efforts to restructure the electricity industry and the significance of the market-power issue becomes apparent.
Between 1990 and 1994, AT&T filed tariffs that other carriers quickly matched, avoiding in the process the sort of price wars that followed deregulation in airline and trucking industries. Market shares in each long-distance sector stabilized at roughly 60 percent (for AT&T), 20 percent (MCI), 10 percent (Sprint), and 10 percent (all other carriers). Industry concentration stabilized at a high level, with Herfindahl-Hirshman Index values ranging between 0.4 and 0.6 across long-distance services.