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The Impact of Regulation on Innovation and Choice in Wireless Communications

Review of Network Economics, Forthcoming

44 Pages Posted: 26 Sep 2009 Last revised: 21 Apr 2013

Everett Ehrlich

ESC Company

Jeffrey A. Eisenach

American Enterprise Institute; NERA Economic Consulting

Wayne A. Leighton

Francisco Marroquin University

Date Written: September 1, 2009

Abstract

Proposals to increase regulation of mobile wireless services, for example, by applying “net neutrality” regulation, are often based on claims that such regulation would enhance innovation and increase consumer choice. In fact, they would have the opposite effect. The business practices that would be banned by such regulation are efficient mechanisms for spreading and reducing risk, lowering transactions costs, and enhancing marketing activities, all of which contribute to innovation and choice. Moreover, product differentiation increases competition and thus contributes both directly and indirectly to consumer choice. While some types of exclusive agreements and other “discriminatory” practices can theoretically harm competition, the precondition for such harm to occur – i.e., market power in one or more of the affected markets – generally is not present in wireless markets. Hence, the proposed regulations cannot be justified on grounds of market failure. Rather than increasing innovation and consumer choice, as promised, they would severely disrupt the wireless sector’s highly successful business model and significantly reduce innovation and consumer choice.

Suggested Citation

Ehrlich, Everett and Eisenach, Jeffrey A. and Leighton, Wayne A., The Impact of Regulation on Innovation and Choice in Wireless Communications (September 1, 2009). Review of Network Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1478528

Everett Ehrlich

ESC Company ( email )

Washington, DC
United States

Jeffrey A. Eisenach (Contact Author)

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

NERA Economic Consulting

1255 23rd Street, NW, Suite 600
Washington, DC 20037
United States
202-466-3510 (Phone)
202-466-3605 (Fax)

HOME PAGE: http://www.nera.com

Wayne A. Leighton

Francisco Marroquin University ( email )

6 calle final, zona 10
Guatemala City, 01010
Guatemala

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