Quack Attack: De Facto Rate Regulation in Telecommunications

ICLE Issue Brief 2023-03-30

21 Pages Posted: 19 Apr 2023

See all articles by Eric Fruits

Eric Fruits

International Center for Law & Economics (ICLE); Portland State University; Economics International Corp.

Geoffrey A. Manne

International Center for Law & Economics (ICLE)

Date Written: March 30, 2023

Abstract

Rate regulation can take many forms. Rates may be regulated through overt price controls, such as price ceilings or price floors; through less-overt rules governing the pace of price changes; or through quality mandates or restrictions. Some rate regulations can provide short-run benefits to certain groups of consumers or producers, but often result in shortages or surpluses that diminish overall welfare. In the long run, rate regulation often distorts investment incentives, leading to a misallocation of investment (e.g., to under- or over-investment).

Because the costs of overt rate regulations are so well-known, price controls are often buried under layers of bureaucracy or wrapped in with other policies and programs, such that policymakers can plausibly claim that their proposals do not directly regulate rates. While not explicit price controls, these programs amount to de facto rate regulation. It’s a regulatory version of the Duck Test.

This issue brief gives an overview, with a particular focus on the telecommunications sector, of the consequences of different types of overt rate regulation—price ceilings and prices floors—as well as how quality regulations can amount to rate regulation. Price controls, such as price ceilings and price floors, are government interventions in the market that aim to regulate the prices of goods and services. While they may have some short-term benefits, they can also lead to long-term consequences that are not always positive. We examine, in particular, four telecommunications programs in which de facto rate regulation is a key component.

Keywords: telecommunications, rate regulation, price ceilings

Suggested Citation

Fruits, Eric and Manne, Geoffrey, Quack Attack: De Facto Rate Regulation in Telecommunications (March 30, 2023). ICLE Issue Brief 2023-03-30, Available at SSRN: https://ssrn.com/abstract=4412076 or http://dx.doi.org/10.2139/ssrn.4412076

Eric Fruits (Contact Author)

International Center for Law & Economics (ICLE) ( email )

1104 NW 15th Avenue
Suite 300
Portland, OR 97209
United States

HOME PAGE: http://laweconcenter.org/

Portland State University ( email )

United States

HOME PAGE: http://web.pdx.edu/~fruits/

Economics International Corp. ( email )

4318 NE Royal Court
Portland, OR 97213
United States
503-928-6635 (Phone)

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

Geoffrey Manne

International Center for Law & Economics (ICLE) ( email )

1104 NW 15th Ave.
Suite 300
Portland, OR 97209
United States
503-770-0076 (Phone)

HOME PAGE: http://www.laweconcenter.org

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