Wireless Competition Under Spectrum Exhaust

Abstract:     
There is a growing concern that the present inventory of commercial spectrum — an essential input for providers of mobile wireless services — represents just a fraction of the amount necessary to match growing demand for mobile data services. At the same time, there has been mounting anxiety among policymakers about the number of competitors in the mobile wireless industry. What is lacking from the policy debate today is an economic theory of market performance that integrates these two key issues — spectrum exhaust and industry structure. In this paper, we provide such a theory, and our findings are significant. The addition of a spectrum constraint to the traditional model of competition turns the conventional view that high industry concentration is a bellwether of poor economic performance on its head. Indeed, under a binding spectrum constraint, a market characterized by few firms (rather than a large number of firms) is more likely to produce lower prices and possibly increase sector investment and employment. Given the FCC’s stated position on spectrum exhaust, the agency needs to re-orientate the way it thinks about spectrum policy. Policies that impede incumbent carriers from acquiring more spectrum — via either auction or acquisition — may do harm rather than good.

Number of Pages in PDF File: 22

Keywords: Spectrum Exhaust, Spectrum, Wireless, FCC, Federal Communications Commission, Cournot

JEL Classification: D61, K21, K23, L50, L51, L52, L96, O33, O38

Accepted Paper Series