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The Impact of Regulation on Innovation and Choice in Wireless Communications

Everett Ehrlich

ESC Company

Jeffrey A. Eisenach

American Enterprise Institute; NERA Economic Consulting

Wayne A. Leighton

Francisco Marroquin University

September 1, 2009

Review of Network Economics, Forthcoming

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.

Number of Pages in PDF File: 44

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Date posted: September 26, 2009 ; Last revised: April 21, 2013

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

Contact Information

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
Feedback to SSRN

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