How (and How Not) to Measure Market Power Over Business Data Services

The Federal Communications Commission recently outlined a “new path forward” for imposing price regulation on high-capacity telecommunications circuits sold to businesses and other telecommunications providers. The FCC outlines a two-step procedure for determining if it will apply rate regulation these Business Data Services: As a first step, the FCC proposes to determine “whether market power exist[s]” and where. If the FCC determines that market power exists, then the FCC proposes to apply a price-cap “style” regime to control prices.

The problem, however, is that nowhere does the FCC define a meaningful concept of “market power.” To fill this gap, in this paper I construct a policy-relevant definition of market power. I then consider whether the FCC’s analysis is capable of identifying the presence of or quantifying the magnitude of market power for Business Data Services. As I demonstrate, it is not. The FCC’s analysis is unsupported by basic economics and good statistics, and is thus incapable of providing any meaningful evidence regarding the presence or absence of market power.