Monopoly Unveiled: Telecom Breakups in the US and Mexico

Paper: arXiv 2407.09695

Authors: Fausto Hernández Trillo, C. Vladimir Rodríguez-Caballero, Daniel Ventosa-Santaulària

Abstract

This paper posits the decline in market capitalization following a monopoly breakup serves as a means to gauge how financial markets assess market power. Our research, which employs univariate structural time series models to estimate the firm’s value without the breakup and juxtapose it with actual post-divestiture values, reveals a staggering drop in AT&T’s value by 65% and AMX’s by 32% from their pre-breakup levels. These findings underscore the contemporary valuation of monopoly rents as perceived by financial markets, highlighting the significant impact of monopoly breakup on market capitalization and the need for a deeper understanding of these dynamics.

Complexity vs Empirical Score

• Math Complexity: 5.5/10
• Empirical Rigor: 6.0/10
• Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: The paper presents an insightful adaptation of event-study methodologies to quantify market power via structural time series models (Kalman Filter) applied to major telecom breakups. While the empirical counterfactual analysis is well-motivated and technically sound, the scope is restricted to two case studies with limited details on post-breakup control variables.

Research Flowchart

  flowchart TD
    A["Research Goal:<br>Gauge Market Power & Monopoly Rents via Breakup Impact"] --> B["Data Inputs:<br>Pre- & Post-Breakup Market Capitalization (AT&T & AMX)"]
    B --> C["Methodology:<br>Univariate Structural Time Series Models"]
    C --> D["Computational Process:<br>Estimate Counterfactual Firm Value (Without Breakup) vs. Actual Value"]
    D --> E["Key Outcomes:<br>Value Drops: AT&T (-65%) & AMX (-32%)"]
    E --> F["Conclusion:<br>Financial markets price significant monopoly rents into market cap"]

Cited References (10)

1. Modelling trigonometric seasonal components for monthly economic time series (2013) — link
2. Three Best-Selling Stories About Telecommunications in Mexico: A Critique of the OECD Review of Telecommunication Policy and Regulation in Mexico (2012) — link
3. A SIMPLE TEST OF NORMALITY FOR TIME SERIES (2004) — link
4. Seasonality Tests (2003) — link
5. Why the Break-Up of Conglomerate Business Enterprises Often Increases Value (1995)
6. Market Share and Rate of Return (1972) — link
7. NBER WORKING PAPER SERIES THE MARKET IMPACTS OF PHARMACEUTICAL PRODUCT PATENTS IN DEVELOPING COUNTRIES: EVIDENCE FROM INDIA (2014)
8. New Evidence and Perspectives on Mergers (2001) — link

0 of 10 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.