Topics in Industrial Organization
Sunday, Jan. 8, 2017 10:15 AM – 12:15 PM
Hyatt Regency Chicago, Burnham
- Chair: Aviv Nevo, Northwestern University
The Tragedy of the Last Mile: Congestion Externalities in Broadband Networks
AbstractWe flexibly estimate demand for residential broadband accounting for congestion
externalities that arise among consumers due to limited network capacity and dy- namics arising from nonlinear pricing. To estimate demand, we build a dynamic model of consumer choice and rely on variation on exogenous variation in the tim- ing of network upgrades and nonlinear pricing to identify the model. Our high frequency data permits insight into temporal patterns in usage across the day that are impacted by network congestion, and how usage responds to efforts to mitigate congestion. We show that usage is highly responsive to reductions in congestion, and there is substantial heterogeneity in the response across consumers. Using the model estimates, we then calculate the welfare loss to consumers associated with the existing externalities and compare it to the cost of eliminating them.
Ownership Concentration and Strategic Supply Reduction
AbstractWe explore ownership concentration as a means to seek rents in the context of the U.S.
government's planned acquisition of broadcast TV licenses in the ongoing incentive auction.
We document the significant purchases of licenses by private equity firms in the run-up to this
auction and perform a prospective analysis of the effect of firms controlling multiple licenses on
the outcome of the auction. Our results show that multi-license holders are able to earn large
rents from a supply reduction strategy where they strategically withhold some of their licenses
from the auction to drive up the closing price for the remaining licenses they own in a local
media market. Relative to the case where each license is bid into the auction independently,
total spectrum acquisition costs increase by 22% across local markets, although the increases
are concentrated in a small set of markets. Strategic behavior by multi-license holders reduces
economic efficiency as the set of licenses surrendered into the auction is distorted. We propose
a partial remedy that mitigates the effect of ownership concentration and reduces the distortion
in payouts to broadcast TV license holders by up to 80%. We further show that the impact of
lower participation of license holders and of strategic bidding beyond the local media market
could greatly increase the base level of payouts and exacerbate strategic effects.
University of British Columbia
University of Texas-Austin
University of California-Berkeley
- L0 - General