Public Policy in the Telecommunications Industries
Friday, Jan. 4, 2019 8:00 AM - 10:00 AM
- Chair: Jonathan Levy, U.S. Federal Communications Commission
License Complementarity and Package Bidding: The United States Spectrum Auctions
AbstractThe U.S. spectrum licenses cover geographically distinct areas and are often complementary to each other. A bidder seeking to acquire multiple licenses is then exposed to risks of winning only isolated patches. To allocate licenses more efficiently, the Federal Communications Commission allowed bidders to bid for (predefined) packages of licenses in Auction 73. We estimate the magnitude of license complementarity by modeling the bidding process as an entry game with interdependent markets and evolving bidder belief. Bidders' decisions on bidding (and not bidding) provide bounds on licenses' stand-alone values and complementarity between licenses. We estimate the total complementarity to be around two thirds of the total bidding ($19 billion) in Auction 73. Complementarity in a 1 MHz nationwide license is worth $918 million to an average large bidder but only $120 million to an average small bidder. Our counterfactual analysis shows that the effects of package bidding on bidders' exposure risks depend on package format and package size. More importantly, package bidding increases FCC revenue substantially at the cost of reducing bidder surplus and increasing license allocation concentration.
Steering Incentives and Bundling Practices in the Telecommunications Industry
AbstractWe develop a model of mixed-bundling pricing by monopolistic telecommunications firms to formalize the complex incentives resulting from the introduction of online video services (OTTV). Using unique and detailed panel data on consumers' TV subscriptions and internet usage, we use difference-in-differences estimation to test the impact of nonlinear pricing strategies designed to steer consumers' choices. The strategy is successful at steering consumers toward more-expensive services and decreasing network traffic, while minimally impacting adoption and usage of OTTV. We then discuss the implications of our findings for ongoing antitrust and regulatory discussions regarding the industry.
Quality Overprovision in Cable Television Markets
AbstractWe measure the welfare distortions from endogenous quality choice in imperfectly competitive markets. For U.S. cable-television markets between 1997-2006, prices are 33% to 74% higher and qualities 23% to 55% higher than socially optimal. Such quality overprovision contradicts classic results in the literature and our analysis shows that it results from the presence of competition from high-end satellite TV providers: without the competitive pressure from satellite companies, cable TV monopolists would instead engage in quality degradation. For welfare, quality overprovision cable customers would prefer smaller lower quality cable bundles at a lower price, amounting to a twofold increase in consumer surplus for the average consumer.
- L5 - Regulation and Industrial Policy
- L8 - Industry Studies: Services