George S. Ford

A Valley of Death in the Innovation Sequence: An Economic Investigation

The road between a discovery generated from basic research to a commercial product or process is long and, according to some, rife with significant roadblocks. Innovators and investors alike routinely claim that a ‘funding gap’ or ‘Valley of Death’ exists between basic research and commercialization of a new product. We show that the standard explanations for underinvestment in R&D are not the cause of this phenomenon. Rather, the Valley of Death occurs only in the presence of ‘non-economic’ investments (such as government expenditures on basic research) that are made in very early stage research without sufficient attention to the likely investment decisions at later stages of the innovation process. Other implications for the Valley of Death of government funding of R&D are also considered. Some policy implications of these findings are provided. Copyright , Beech Tree Publishing.

On the Relationship between Telecommunications Investment and Economic Growth in the United States

Using a time series of 50 years, the relationships between investment by telecommunications firms and Gross Domestic Product in the United States are examined. Granger-Sims causality tests are conducted, with proper allowance for both the non-stationarity of the data and lag length. These tests indicate that investment by telecommunications firms is caused by, but does not cause, economic activity, and the findings are robust across lag lengths. The evidence suggests that policies aimed at stimulating the US economy by accelerating investment by telecommunications firms may not be successful.

Is Radio Advertising a Distinct Local Market? An Empirical Analysis

The recent relaxation of regulations limiting the ability of an entity to own multiple radio stations has led to a dramatic increase in ownership concentration in local radio markets. As a result, the Department of Justice has, on several occasions, required limited divestiture of multiple station owners. Implicit in the agencys action is that radio advertising constitutes an antitrust market. Using the framework established by the Merger Guidelines, this paper evaluates whether or not radio advertising is a distinct local market by estimating an own-price elasticity of demand for radio advertising. Our results support the assertion that radio advertising is an antitrust market.

Nineteenth Century Urban Market Failure?: Chadwick on Funeral Industry Regulation

This essay analyzes the regulatory theory and policy preceptions of Edwin Chadwick (1800-1890), the premier Benthamite utilitarian reformer. We focus on and analyze Chadwick‘s economic diagnosis of the London funeral market in the first half of the nineteenth century. In his view, externalities and market failure in both the burial and funeral service markets demanded socialization of property rights and implementation of a franchise bidding scheme. Chadwick‘s rationales for government intervention, including high taxes and information costs—unique, we believe, for his time—provide the basis for numerous forms of contemporary regulations at all levels in the United States today.

Market Power in Radio Markets: An Empirical Analysis of Local and National Concentration

The Telecommunications Act of 1996 contains provisions that allow increasing levels of concentration in local radio markets. Debate has focused on whether allowing greater concentration of broadcast media resources into fewer hands is a sound public policy. One fear of regulators is the effect of increased concentration on the market power of radio stations. Concentrating on intraindustry variations, this paper systematically assesses the link between radio station profitability and market concentration. The underlying assumption of the empirical analysis is that sale price (or present value) of the radio station includes the present value of future profits. The results do not support a strong relationship between increases in concentration and the profitability of radio stations, although we find group ownership to increase efficiency.

The Broadband Adoption Index: Improving Measurements and Comparisons of Broadband Deployment and Adoption

Countries around the world are increasingly concerned as to whether the adoption of broadband technology by their respective citizens is sufficient to support economic growth and social development. Unfortunately, such concerns are often expressed in terms of where a country ranks among its peers by means of raw adoption numbers. Such raw data are often misleading and incomplete. In this Paper, we propose a different and more policy-relevant approach to adoption measurement. We develop a value-based Broadband Adoption Index (“BAI”) that compares the actual value to society that results from the adoption of broadband technology to a target level of adoption value. This target level will vary from country to country and is a function of the social value of broadband connectivity, measured as the difference in the social benefits and the costs of broadband. The BAI is specifically designed to accommodate and include the value of different connection modalities like mobile broadband into a single index, something that merely summing the number of connections cannot do. We believe that policymakers can adopt aspects of the BAI approach immediately, with particular attention to collecting and using proper information for policy decisions.

Price-Quality Tradeoffs and Welfare Effects in Cable Television Markets

The Telecommunications Act of 1996 reduced restrictions on the cable TV industry, providing completely deregulated rates in March 1999. Prior to that time the cable industry was generally allowed to increase rates so long as additional channels were supplied. In this paper we develop a simple tradeoff between price and quality in order to calculate the welfare tradeoff to consumers of the provision of one additional satellite channel. Gauging the impact of this quality change on consumers alone, we conclude that the increase in consumer gains due to an extra channel provision are almost exactly counterbalanced by reductions due to price increases. This ceteris paribus calculation does not mean, of course, that dynamic supply effects from the provision and availability of more channels will not increase future competition and potential consumer benefits.

An investigation into the relationship of retail gas prices on oil company profitability

In this article, we present several empirical procedures using publicly available data from the US Department of Energy (DOE), and the Securities and Exchange Commission (SEC) to examine the relationship of oil company gross profit margins to retail gas prices. This descriptive analysis indicates that the profit margins of the major integrated oil companies are lower, on average, during periods of extremely high gas and oil prices (and, in fact, are even lower than in times of extremely low gas and oil prices). Large oil companies are most profitable during periods of moderate gasoline prices. Smaller, vertically integrated oil companies and firms, primarily in the business of refining purchased crude oil, exhibit a consistently inverse relationship between profit margins and retail gas prices – as gas prices increase, these firms become less profitable. We find no evidence for the increase in the gross profit margins of oil companies during episodes of very high retail gasoline prices.

Competition After Unbundling: Entry, Industry Structure and Convergence

In the last few years, U.S. telecoms policy has shifted from encouraging the sharing of existing networks to facilitating the deployment of advanced communications networks. Given the large capital expenditures required for these networks, there can be only a few of such networks. In light of the natural forces that limit the number of facilities-based suppliers, it is vital for policymakers to investigate and implement rules that make markets more conducive to facilities-based entry, and eliminate any existing rules that discourage deployment. The purpose of this Policy Paper is to provide a simple conceptual framework that can be used to evaluate the effect of particular rules and regulation on the construction of advanced communications networks and the expansion of existing networks into new markets. We provide numerical examples and a number of applications to illustrate how the conceptual framework can be used to evaluate particular rules and regulations as to their effect on facilities-based entry. Applications include an analysis of convergence, regulated limitations on service offerings, the pernicious effects of cable franchising, and the potential for collusion.

The Frontier of Broadband Adoption Across the OECD: A Comparison of Performance

We assess the performance and efficiency of OECD countries with respect to broadband Internet subscription. Using the econometric techniques of Least Squares and Stochastic Frontier Analysis, we estimate scores indicating the efficiency with which a country converts its economic and demographic endowments into broadband subscriptions. With very few exceptions, we find that broadband subscription in OECD countries is consistent with those endowments – about two thirds of OECD countries have an efficiency rate of 90% or better. We find that economic and demographic endowments explain nearly all of the variation in broadband subscriptions (85%). This finding suggests that public policys role for broadband adoption should be targeted at improving or mitigating the adverse effects of underlying demographic and economic conditions, such as computer ownership and education programs.