1. Market Power and Cincinnati Bell
Melissa Diliberti
November 15, 2016

2. Telephone Market Pre-1984
Bell Telephone Company, and its subsidiaries, had a monopoly on the U.S. telephone market dating back to
Bell Telephone Company was a natural monopoly2
High fixed costs (to build network)
Very low marginal cost (after network was built)
Monopoly was broken up by the U.S. Department of Justice in December 1983 following an anti-trust lawsuit3

3. Telephone Market Post-1984
Cincinnati Bell is one of the few subsidiaries that continues to operate, servicing Ohio, Kentucky, and Indiana4
Cincinnati Bell is an “incumbent local exchange carrier” (ILEC)5

4. How has the market changed for Cincinnati Bell?
Market pre-1984:
Monopoly
Market power
Faces downward demand curve
Controls market price by changing quantity of output
Firm wins
Market post-1984:
Competitive market
No/less market power*
“Infinite” demand at given price
Accepts market price as given
Consumers win

5. How has the market changed for Cincinnati Bell?
Market pre-1984:
Market post-1984:
Monopoly
Competitive P P MC MC
ATC P1 P2 MR MR D Q* Q Q* Q

6. Does Cincinnati Bell Have Market Power?
FCC/Regulators:
Cincinnati Bell has retained some market power
Provides service to 64 percent of area6
Cincinnati Bell:
Operating in a competitive market
Regulation should not apply to mid-size ILECs like us
Large wireless providers (such as AT&T and Verizon) have more control over price than us

7. References
1 “Bell Telephone System,” United States History, accessed November 13, 2016, history.com/pages/h1803.html.
2 Austan Goolsbee, Steven Levitt, and Chad Syverson, Microeconomics (New York: Worth Publishers, 2013), 348.
3 “Bell Telephone System,” United States History, accessed November 13, 2016, history.com/pages/h1803.html.
4 “Cincinnati Bell,” Wikipedia, accessed November 13, 2016,
5 Sean Buckley, “Cincinnati Bell says mid-size telcos should be exempt from FCC’s BDS rate reduction proposal,” Fierce Telecom, November 9, 2016, accessed November 13, 2016, telcos-from-rate-cuts.
6 Sean Buckley, “Cincinnati Bell says mid-size telcos should be exempt from FCC’s BDS rate reduction proposal,” Fierce Telecom, November 9, 2016, accessed November 13, 2016, telcos-from-rate-cuts.