Monopoly Unveiled: Telecom Breakups in the US and Mexico

TL;DR

This paper investigates how monopoly breakups in the US and Mexico affect market capitalization, revealing significant declines in firm values and providing insights into market valuation of monopoly rents.

Contribution

It introduces a novel application of univariate structural time series models to estimate firm value without breakup and compares it with actual post-divestiture values.

Findings

AT&T's value dropped by 65% after breakup

AMX's value dropped by 32% after breakup

Market perceives monopoly rents as significant

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.