Toll-free numbers: Demand, property rights, and public policy

The demand for Toll Free Numbers (TFNs) languished from 2000 to 2008; however recent growth in demand caused the FCC to open a new toll-free code (855) with the possibility of new code openings in the next three years. The analysis here indicates the demand for TFNs is highly inelastic (the coefficient for own price elasticity for TFNs is approximately −0.04). This has implications for concerns regarding future exhaust of toll-free codes and the price structure for recovery of SMS/800's costs. This article considers the effects of the limited property rights for TFN, and welfare implications of gray markets for vanity TFNs. The FCC's allocation mechanism for new 855 codes is considered and whether other allocation mechanisms, such as auctions, could be welfare superior.

► The structure of the toll free services industry and its history is described.
► Toll free numbers are clearly a factor of production for toll free services.
► We estimate the demand for toll free numbers (TFNs), finding it is highly inelastic (0.04).
► Public policy implications of inelastic demand are considered.
► The welfare implications of the FCCs limitations of complete property rights for TFNs are discussed.