Market Efficiency in the Digital Economy: Lessons from the US and European Telecom Industry Dynamics

The telecom industry over the past fifteen years offers a fascinating 'natural experiment' to discuss the much debated notion of efficient market. Market efficiency was actually the central motivation and justification of the liberalization policies devised worldwide in that sector. The current severe crisis affecting the telecom sector provides an opportunity to reconsider this line of reasoning and its key concepts. First, we examine how the practical implementation process gives birth to differentiated national paths, depending on initial conditions (industry structure, deregulatory mode and calendar…), the successive strategic interactions between the players involved, and the overall institutional and political environment. As the French-US comparison demonstrates, the final economic outcome is then strongly dependent on the beginning, the pace, and the shape of this national specific process. We then consider the feedback an unexpected event, namely the spectacular growth of Internet, has on the generic competition policy's framework. The case of broadband access illustrates the possible emergence of new public social objective (digital divide, information society) aside competition effectiveness, but possibly conflicting with it. In our view, the lessons of the telecom 'experiment' encourage one to take up a very cautious and critical approach of the notion of efficient market, if the crucial role of political objectives, market structures, and national specific patterns is omitted.