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Antitrust issues concerning R&D cross-subsidization : A case study of US telecommunications

By P. M. Rao and Joseph A. Klein

Abstract

This article examines the treatment of cross-subsidization under the antitrust laws in the context of a US telecommunication service industry that is regulated and characterized by rapidly changing technology and significant R&D expenditures. With particular reference to the divested Bell operating companies under the Modification of Final Judgment, the article focuses on cross-subsidy concerns that would flow from the funding of R&D by a regulated firm if it were affiliated with unregulated entities. The article suggests an economic-based analytical framework, and possible remedies against potential anticompetive effects, as a substitute for automatic application of legal presumptions of abuse of market power.

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