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Abstract:
The Telecommunications Act of 1996 sets forth extensive provisions to unbundle the local telecommunications network to encourage the development of a competitive market for local telephone. It would seem to have been an unstated premise of those statutory provisions and the Federal Communications Commission (FCC) rules interpreting them that the task of unbundling is one that should take place in a technological vacuum. Although the Telecommunications Act of 1996 ostensibly removed artificial regulatory distinctions based on the particular technology employed to produce a communications service, the administrative rulemakings and federal court litigation that have dominated the first three years of experience under the new statute have focused on the traditional wireline access network and have seemingly ignored the fact that, over the same period, wireless telecommunications has rapidly matured as a substitute for wireline access. If regulators were to acknowledge that development, the entire exercise of wireline unbundling could become irrelevant.

Wireless local telephony already provides a substitute for wireline access. It is therefore highly pertinent for a symposium on interconnection, such as this one, to consider the FCC's policies that artificially constrain the market structure for wireless telecommunications services. The Supreme Court's 1999 decision in AT&T Corp. v. Iowa Utilities Board, reversed the FCC's unbundling rules for incumbent local exchange carriers to the extent that the agency failed to establish a reasonable standard for determining whether it is necessary to unbundle a particular element and whether the failure to unbundle that element would impair and entrant's ability to compete in the provision of local telecommunications services. In this Article, we propose a general framework for evaluating competition in wireless telecommunications. Although our analysis has immediate ramifications for wireless telecommunications policies-such as spectrum caps and mergers of wireless carriers-the same analysis can shed light on the question of whether, or for how long, it is necessary to mandate the unbundling of even the copper loop, which constitutes the element of the wireline network that is considered the least susceptible to duplication by competitors. If wireless is indeed an access substitute for wireline copper loops, and if wireless thus permits the competitive supply of bundled services that are satisfactory substitutes in consumers' minds for the typical bundle of services that consumers have until now demanded in conjunction with standard wireline access, then Congress, the FCC, the state public utilities commission, and the courts must ask: Is the great experiment of mandatory unbundling of telecommunications networks worth the candle?

That consequential question emerges from the analysis that we employ to study a seemingly narrower issue of wireless telecommunications policy. By regulation, the FCC has limited to 45MHz the amount of commercial mobile radio services (CMRS) spectrum that may be licensed to a single entity within a particular geographic area. As the Commission stated in its 1998 notice of proposed rulemaking (NPRM) concerning possible relaxation of the spectrum cap, a single entity may acquire attributable interests in the licenses of broadband Personal Communications Service (PCS), cellular, and Specialized Mobile Radio (SMR) services that cumulatively do not exceed 45 MHz of spectrum within the same geographic area. We formulate, in this Article, a decision rule that would assist the Commission in deciding whether or not to retain the spectrum cap and, thereafter, in evaluating competition in wireless telecommunications generally.

We employ decision-theoretic analysis to determine whether the expected costs of retaining the 45 MHz spectrum cap exceed the expected costs of removing it. The expected costs of removing the spectrum cap are negligible. The probability of either monopolization by a single firm or collusive pricing by a group of nationwide pricing plans and because capacity is a function of both spectrum and equipment. In contrast, the expected costs of retaining the spectrum cap are substantial as wireless services evolve from mobile voice to fixed voice and data applications. The probability that a single carrier would use more than 45MHz is nontrivial, because the growth in demand due to consumers' desire for bundled service offerings and the invasion of wireless carriers into fixed communications markets will together severely burden existing networks. In short, a cost-benefit analysis demonstrates that the spectrum cap should be abolished because the expected costs of retaining the spectrum cap vastly exceed the expected costs of removing it.

The application of decision-theoretic analysis to the issue of spectrum cap policy can easily be generalized to deal with a broad range of competitive policy issues in the wireless industry. We restate the decision rule in terms that can be applied to numerous wireless policy issues. For example, regulators may have to decide whether newly merged firms should be forced to divest themselves of wireless properties in overlap territories. The issue of divestiture is treated in similar fashion to the spectrum cap analysis. Not surprisingly, many of the same factors that influence the spectrum cap analysis resurface in the merger analysis.

In Part I of this Article, we explain our decision-theoretic rule for determining whether the spectrum cap should be retained. In Part II, we estimate the expected costs of removing the cap and describe the magnitude of those costs in qualitative terms. In Part III, we present the same analysis with respect to the expected costs of retaining the cap. In Part IV, we compare the expected costs of retaining and removing the spectrum cap. In Part V, we demonstrated the general applicability of our decision-theoretic approach to competitive policy in the wireless communications industry. We conclude by noting how the increasing substitutability of wireless and wireline services is blurring the definitions of relevant market in the telecommunications industry-a development that has direct implications for whether, and how much, to mandate unbundling of the incumbent wireline network.

Abstract:
In this Article, we examine the neglected tradeoff between innovation and mandatory unbundling of telecommunications networks. Our analysis is prompted by the Supreme Court's 1999 decision in AT&T Corp. v. Iowa Utilities Board and by the Federal Communications Commission's Second Further Notice of Proposed Rulemaking released later the same year, which address which network elements in the local telecommunications network shall be subject to compulsory sharing among competitors at regulated cost-based rates. Economic analysis indicates that mandatory unbundling at prices computed on the basis of the total element long-run incremental cost of the various network elements belonging to an incumbent local exchange carrier will adversely affect the ILEC's incentives not only to upgrade or maintain existing facilities, but also to invest in new facilities. Mandatory unbundling at TELRIC prices will also encourage competitive local exchange carriers to deviate from the socially optimal level of investment and entry. Finally, the confluence of mandatory unbundling and other FCC policies aggravates the distortion of investment decisions.

Abstract:
Broadband, or high-speed access to the Internet, has generated significant economic benefits. Certain regulations, however, are slowing investment and deterring entry into the broadband market. In this statement, we make two recommendations that would remedy these regulatory defects and thereby lower artificial barriers to competitive provision of broadband services.

Abstract:
We investigate the implications for patent-related public policy arising out of products that incorporate large numbers of inventions. Inventions may be combined in such multi-invention products using three alternative organizational modes - viz., licensing of inventions, trade in components that embody inventions, or by integrated production. An analytical framework is presented wherein the organizational tradeoffs between these modes are evaluated using a transaction cost approach. We demonstrate that patent policy not only affects incentives for innovation, but also influences these transaction costs, which in turn determine the preferred organizational mode(s) in the industry. Therefore, appropriate patent policy for multi-invention products is determined not only by tradeoffs between incentives for innovation and the ill-effects of monopoly, but also by organizational considerations in commercialization. The framework operationalizes the concerns voiced in many industries that current patent policy gives rise to dysfunctional transaction costs in multi-invention contexts. Implications are drawn for patent policy based on the framework and transaction cost analyses.

Abstract:
The September 2009 announcement that the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice have initiated a review of the Horizontal Merger Guidelines provides a formal process for redefining the proper role of dynamic competition in antitrust law.

How would competition policy be shaped if it were explicitly to favor Schumpeterian (dynamic) competition over neoclassical (static) competition? Schumpeterian competition is the kind of competition that is engendered by product and process innovation. Such competition does not merely bring price competition. It tends to overturn the existing order. A “neo-Schumpeterian” framework for antitrust analysis that favors dynamic competition over static competition would put less weight on market share and concentration in the assessment of market power and more weight on assessing potential competition and enterprise-level capabilities. By embedding recent developments in evolutionary economics, the behavioral theory of the firm, and strategic management into antitrust analysis, one can develop a more robust framework for antitrust economics. Such a framework is likely to ease remaining tensions between antitrust and intellectual property. It is also likely to reduce confidence in the standard tools of antitrust economics when the business environment manifests rapid technological change. It appears that the Antitrust Division of the U.S. Department of Justice has attempted to incorporate more dynamic analysis, but the result has been inconsistent across different mergers and different doctrinal areas of antitrust law. Moreover, a complicating factor in the transformation of the law is the fact that the federal courts have, by embracing the reasoning in the Merger Guidelines promulgated several decades ago by the Antitrust Division and the Federal Trade Commission, caused antitrust case law to ossify around a decidedly static view of antitrust. Put differently, in the years since 1980, the Division and the FTC have successfully persuaded the courts to adopt a more explicitly economic approach to merger analysis, yet one that has a static view of competition. The result is not a mere policy preference. It is law. To change that law to have a more dynamic view of competition will therefore require a sustained intellectual effort by the enforcement agencies (as well as by scholars and practitioners) that, once more, engages the courts to reexamine antitrust law, as they did in the late 1970s during the ascendancy of the Chicago School, when antitrust law became infused with its current, static understanding of competition. A necessary but not sufficient condition for that effort is a public process by which the Division and the FTC revisit and restate the Merger Guidelines in a manner that clarifies and defends the role of dynamic competition in antitrust analysis. We therefore applaud the announcement of the antitrust agencies in September 2009 to solicit public comment on the possibility of updating the Merger Guidelines. Assuming that the Division and the FTC decide to revise the existing Merger Guidelines, those revised guidelines (and useful complementary undertakings, such as generalized guidelines on market power and remedies) then will require leadership by the enforcement agencies to persuade the courts that antitrust doctrine should evolve accordingly. That neo-Schumpeterian process may take a decade or longer to accomplish, but it is a path that we believe the Roberts Court is willing to travel.

Abstract:
Fifteen scholars on auctions and telecommunications regulation urge the FCC to cancel bids made in, or permit winning bidders to opt out of, the reauction of the NextWave licenses in Auction 35.

For auctions to function efficiently, buyers and sellers must follow basic rules, including the rule that a seller deliver in a timely manner what the winning bidder has purchased. This rule has not been applied in Auction 35. The FCC auctioned something that it did not have - immediate access to the spectrum for the winning bidders. Thus, if the FCC forces the winning bidders to pay, they will sue the agency for forcing them to pay for something that they did not receive. Alternatively, their shareholders will sue the companies. Meanwhile, wireless carriers have invested in less efficient technologies to meet capacity needs.

The FCC has said that its current policy toward Auction 35 seeks to "protect the integrity" of the spectrum auction process. The opposite is already occurring. The FCC increases uncertainty in the wireless market if it holds carriers accountable for winning bids for licenses that the agency cannot deliver. Bidders will discount their future bids accordingly, and auction revenues will fall. That outcome does not benefit consumers, taxpayers, workers, or shareholders.

Abstract:
Work on dynamic capabilities is proving to be a fruitful direction in understanding the nature of the firm. An evaluation of this literature makes the foundational contributions of Cyert and March (1963) and Nelson and Winter (1982) abundantly clear. Cyert and March redefined firms as heterogeneous organizations possessing standard operating procedures that are difficult to codify, arguing that they are therefore not easily imitated by others or even replicated by the firm itself. Nelson and Winter redefined standard operating procedures as routines, and showed how these routines, the genetic material of the firm, influenced the firm's adaptation in its environment. These developments allowed subsequent scholars to couch firm strategy in a dynamic setting. In this paper we trace the lineage of dynamic capabilities from the revolutionary, but generally non-strategic behavioral model of Cyert and March, through the dynamic evolutionary theory of the firm found in Nelson and Winter, then through to the more recent efforts of Teece et al (1990, 1997), Zollo and Winter (2002), and Teece (2006). The paper traces the lineage from Cyert and March's view of firms as heterogeneous organizations comprised of standard operating procedures to the development of a dynamic theory of firm capabilities through the contribution of Nelson and Winter's model of routine-based firms evolving in a changing environment.

dynamic capabilities, behavioral theory, routines

Abstract:
We favor revision of the Horizontal Merger Guidelines. Our preliminary comments in this essay are based on a work in progress that we provisionally entitle, “Favoring Dynamic Competition over Static Competition.” The eventual paper will address, in greater detail than we can explore here, how government enforcement agencies and courts would apply a more explicitly dynamic model of competition to merger analysis. We pose the following question: How must competition policy evolve if it is explicitly to favor Schumpeterian (dynamic) competition over neoclassical (static) competition? Of course, one also could ask that question with respect to intellectual property law and sector-specific regulation of network industries. We intend to do so in our eventual paper.

Abstract:
This paper provides an economic analysis of multi-client, multi-service accounting firms. The objective is to aid in the development of a new framework for auditor independence. We adopt the modern theory of the economics of organization, which views organizational structures and relationships as the results of efforts to create and deliver value. We see auditor independence as a property of auditors' interests, both at a personal level and at the level of the accounting firm. A proper assessment of auditors' interests requires a holistic approach. That is, in assessing auditor independence, we must examine the totality of auditors' interests. We identify and analyze a complex web of institutional and personal incentives that affect auditors' interest

auditor independence, economic analysis, public accounting firm

Abstract:
The "parallel behavior is enough" standard cannot assist the courts in distinguishing horizontal agreements to restrain trade from normal competition. It would very likely impose significant costs on the economy by distorting competitive incentives and encouraging meritless litigation designed mainly to induce financial settlements.

Twombly, Bell Atlantic, Bell Atlantic v Twombly, Amici Curiae, Sherman Section 1

Abstract:
This article begins with some notes on the intellectual climate in which the article of (Winter 1968, Towards a Neo-Schumpeterian Theory of the Firm, The RAND Corporation; 2006, Industrial and Corporate Change, 15, 1) was first written. It identifies core ideas and contentions Sidney Winter helped put on the research agenda for scholars interested in complex business organization. We point out that Winter's early contentions have implications for strategic thinking (in both business and military contexts) and that a promising research agenda lies in the further development of notions of organizational capability.

Abstract:
This book explores factors which impact the viability and growth of business enterprises. In particular, the role of entrepreneurship, organizational learning, and business strategy - including licensing strategy - are considered in some detail. It presents fundamental thinking about business organization and provides the conceptual framework that scholars need to understand complex business organization, managerial processes, and competitive strategy.

Technological Innovation, Technology Transfer, Organizational Learning, Licensing, Cross Licensing, Organizational Capabilities, Dynamic Capabilities

Abstract:
Books reviewed:

Ove, Granstrand, Economics, Law and Intellectual Property: Seeking Strategies for Research and Teaching in a Developing Field

Ahmed Bounfour, The Management of Intangibles - The organisation's most valuable assets

R. S. Kaplan and D. P. Norton, Strategy Maps - Converting intangible assets into tangible outcomes

Henry W. Lane, Martha L. Maznevski, Mark E. Mendenhall and Jeanne McNett, The Blackwell Handbook of Global Management - A Guide to Managing Complexity

Scott Shane, Edward Elgar, Academic Entrepreneurship: University Spin offs and Wealth Creation

Abstract:
We submit these comments to the Federal Trade Commission and the U.S. Department of Justice in their review of the Horizontal Merger Guidelines. The Agencies ask, in Question 8: “Should the Guidelines be revised to explain more fully than in the current §1.521 how market shares and market concentration are measured and interpreted in dynamic markets, including markets experiencing significant technological change?” Our answer, which reflects our previous writings, is clearly “yes.” The Merger Guidelines should embody principles that reflect dynamic competition rather than static competition. In Part I of these comments, we discuss the differences between dynamic competition and static competition. Dynamic competition — fueled by new products, new paradigms, or new sources of supply that provide decisive cost advantages — is the most compelling form of competition. Merger enforcement should be sensitive to (1) preserving opportunities for such paradigm shifts, and (2) recognizing the potential for these paradigm shifts to render existing market power non-durable. Thus, high market shares of themselves should not be cause for concern in industries in which there has been a history of, or there is likely to be, paradigm-shifting competition. The ability of new firms or smaller incumbents to innovate and rapidly adopt new technologies enables them to disrupt the market and prevent firms with high historic shares from exercising market power. Further, a firm with a high market share in an industry characterized by dynamic competition may have that market share precisely because competition is working. Consequently, possession of that high market share by a merging party should not, without more, cause concern. Product differentiation complicates direct comparisons of products and may lead to incorrectly narrow market definitions and misleadingly high market shares. In Part II, we discuss three versions of economic rent: Ricardian (scarcity) rents, Schumpeterian (entrepreneurial) rents, and monopoly rents. The Merger Guidelines should recognize that some sources of high margins (the difference between price and marginal cost) are competitively benign, or may even suggest that competition is strong. To conclude in these circumstances that high margins (again, without more) are indicative of competitive concerns could discourage innovation and the welfare-enhancing benefits it brings to consumers.

Abstract:
The international transfer of technology is one of the most important features of the global economy. However, the literature on it is sparse. This book encapsulates the author’s contributions to this field over the last three decades and provides insights into the manner, mechanisms, and cost of technology transfer across national boundaries and the implications for (the theory of) the international firm.

Technology Transfer, Royalties, Licensing, Cross Licensing, Intellectual Property, Multinational Enterprise, Research and Development, Foreign Investment

Abstract:
The concepts of asset co-specialization and dynamic capabilities have been instrumental in furthering the organization and strategy scholarship agenda, but have so far had limited impact to the theory of the MNE and FDI. In addition, the role of entrepreneurial management in orchestrating system-wide social value creation through market and eco-system co-creation, in order to advance private appropriation, has been all but ignored. We claim that these ideas should be seen as instrumental in explicating the new nature of the MNE in the knowledge-based, semi-globalized economy. The nature of the MNE in its turn should not be seen as separable from either the objectives of the agents who set them up or its essence – the employment of strategy to capture co-created value.

Asset Co-specialisation, Dynamic Capabilities, Cross-border Market and Ecosystem Co-creation, Theory of MNE and FDI

Abstract:
Establishes a framework within which to analyze the profit distribution of innovations and determines the reasons why imitators may outperform innovators. First, the three fundamental building blocks necessary to explain the distribution of innovations are discussed: the appropriability regime, complementary assets, and the dominant design paradigm. Next, the imitation process and the distribution of profits between innovator and follower are examined by relating these three concepts. Then, an appropriate control structure is proposed which the innovator ought to establish over critical, complementary assets. Finally, implications for R&D strategy, industry structure and trade policies are discussed. Analysis suggests that firm boundaries are an important strategic variable for firms that innovate. Also, innovator ownership of complementary assets can be the deciding factor in whether innovators or imitators outperform one another in garnering the most economic return from innovation. (SFL)

Appropriability, Imitators, Complementary assets, Technology innovation, Firm strategies, Intellectual property, Commercialization, Competitive advantages, R&D, Licensing, First-mover advantage, Interfirm alliances

Abstract:
The foundational contribution of Edwin Mansfield to the economic study of technological change and innovation, especially of technology transfer, is examined.In the late 1960s, Mansfield was the first to perform serious empirical studies of industrial research.His work provides insights into the role of academic and basic research in increasing innovation and productivity, the diffusion of technological innovations, the private and social returns to innovations, and the role of patents and the patent system.These areas became critically important to managers and policy makers. Mansfield's influence on the author's research is also discussed.The author links Mansfield's work to recent developments in the economics and management of knowledge, industrial transfer, the nature of knowledge, the importance of intellectual capital and intellectual property, the process of capturing value from intellectual capital, valuation issues of accounting an market metrics, and the internationalization of research and development activity.Much recent work on patenting, technology strategy, and economics of knowledge has its origins in the earlier writings of Mansfield. It is concluded that Mansfield should be recognized as the pioneer for this research. (TNM)

Mansfield, Edwin, Economics of innovation, Economics of knowledge, R&D metrics, Technological change, Industrial research, Academic research, Diffusion of innovations, Technology transfer, Intellectual property, Innovation process, R&D, Intellectual capital, Intangible assets

Abstract:
Dosi () has provided an eclectic framework which has for some time now been one of the core concepts in innovation studies. While it has been very influential in public policy, in management it remains underexploited. Many insights remain to be teased out of the framework which can help managers make better decisions. This article reflects on the far-reaching impact of Dosi's ideas and his role in the founding and development of Industrial and Corporate Change.