Robert W. Crandall

Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence

This paper reviews the literature and assesses the effects of antitrust policy and enforcement on consumer welfare. We find no evidence that antitrust policy in the areas of monopolization, collusion, and mergers has provided much benefit to consumers and, in some instances, we find evidence that it may have lowered consumer welfare. We also do not find any evidence that antitrust policy has deterred firms from engaging in actions that could harm consumers. We identify various reasons for the apparent ineffectiveness of antitrust policy, offer preliminary policy recommendations, and suggest ways in which economists could more fully assess antitrust policy.

The Effect of Fuel Economy Standards on Automobile Safety

STANDARDS LEADING TO REDUCTION IN VEHICLE SIZE AND WEIGHT, RESULTING IN MORE ACCIDENTS AND INJURIES

Do Unbundling Policies Discourage CLEC Facilities-Based Investment?

An expanding economics literature has examined the theoretical linkages between mandatory unbundling in the telecommunications sector and the incentives to invest in facilities by both incumbent local carriers and competitive carriers. Recent empirical evidence that substantiates the theory has emerged. That literature documents CLECs’ reluctance to make facilities-based investments instead of availing themselves of incumbents’ UNEs at low regulated prices that are based on total element long-run incremental costs (TELRIC). By examining the variation in facilities-based investment in loops across U.S. states and over time, we find that facilities-based line growth relative to UNE growth was faster in states where the cost of UNEs was higher relative to the cost of facilities-based investment.

The Empirical Case Against Asymmetric Regulation of Broadband Internet Access

The United States has asymmetric regulation of the provision of broadband Internet access service. A cable television system operator is not regulated in its sale of cable modem service. In contrast, an incumbent local exchange carrier (ILEC) that offers digital subscriber line (DSL) service faces price regulation as well as the obligation to offer competitors the use of its broadband network on a wholesale (or, unbundled) basis so that they may offer, in the retail market, DSL services that compete with the ILECs own retail offering to consumers. The social costs of asymmetric regulation are by now familiar. Such regulation leads not to deregulation, but to an enduring managed competition far more complex to administer than traditional regulation of a monopoly service provider ever was. The alternative to asymmetric regulation is either symmetric regulation or symmetric freedom from regulation. Assuming that the latter alternative is preferred, what actual steps would be taken to abolish asymmetric regulation of ILEC provision of broadband Internet access? The Federal Communications Commission (FCC) could remove asymmetric regulation that the agency itself previously imposed. The FCC could declare that broadband Internet access service is not a telecommunications service, subject to numerous regulations applicable to ILECs, but rather an information service, which is free of such regulations. Amid considerable controversy, the FCC invited public comment on such a reclassification in February 2002. Or the FCC could use its power under section 10 of the Communications Act to forbear from regulating ILEC provision of broadband Internet access. A third, and more incremental, approach would be for the FCC to declare ILECs nondominant in the provision of advanced services, such as broadband Internet access. Non-dominant carriers are exempt from price-cap or rate-of-return regulation, as well as the obligation to file tariffs and to establish the reasonableness of those tariffs through the submission of cost data. Much, if not all, of the economic analysis required to determine whether a carrier is nondominant also would be relevant to the FCCs decision whether to forbear from regulating a particular service or whether to reclassify the service in question as unregulated. Although the FCC did not receive its authority under section 10 to forbear from regulation until 1996, the agency has evaluated petitions for nondominance for a longer time and consequently has distilled a body of law on the subject. In this Article, we evaluate the case against asymmetric regulation of broadband Internet access through the lens of the FCCs approach to deciding petitions for non-dominance. We examine the economic evidence relevant to whether ILECs are non-dominant in the provision of mass-market broadband services, the most familiar of which is DSL service. We use a nested-logit discrete-choice model to produce econometric estimates of the own-price elasticity of demand for DSL service and the cross-price elasticity of demand for cable modem service with respect to DSL service. Our findings suggest that demand for DSL service is price-elastic, that DSL and cable modems are in the same product market, and that DSL providers lack market power. The FCC would advance the public interest by ruling that the ILECs are non-dominant in the mass-market broadband services market.

THE EXTRA MILE. RETHINKING ENERGY POLICY FOR AUTOMOTIVE TRANSPORTATION

Each year the United States consumes a quarter of the worlds crude oil output, mostly to propel some 200 million cars and trucks and to sustain the extensive infrastructure they require. For the past 20 years, the primary goal of American energy policy has been to reduce the nations reliance on oil, but, according to the authors, policymakers have been going about it inefficiently in the transportation sector. They say the United States, rather than continuing to administer mileage mandates on motor vehicles, should raise the price of motor fuel to moderate consumption. This view has consistently met with broad-based congressional and public opposition. Although fuel taxes are a common and effective method of conserving energy in other industrialized nations, U.S. policy has traditionally relied on regulation rather than on taxation to promote energy efficiency in automotive transportation. This book examines both the political causes and the economic effects of this idiosyncratic policy preference. The authors find that an additional excise of 25 cents a gallon over the past nine years would have conserved at least as much oil as the existing policy of imposing gas mileage requirements for new passenger vehicles. And such a tax, they contend, would not be as detrimental to the economy as opponents fear, nor as regressive as they claim. The authors examine the development of motor-fuel excises in Great Britain, France, Germany, Japan, and Canada, explaining the historical and political factors that have led to different national policy orientations. Turning their attention back to the United States, the authors show how regulatory measures have fallen short of their goal and why political barriers to bolder taxation of gasoline remain formidable. They conclude by offering suggestions for new directions in U.S. policy at the federal, state, and local levels.

Are telecommunications facilities 'infrastructure?' If they are, so what?

Abstract It is obvious that modern telecommunications networks possess at least some of the attributes of what we commonly call ‘infrastructure’. They are essential to modern commerce and, indeed, to modern living. It is essential that all subscribers be able to connect to most other subscribers, but perhaps not through the same network but through interconnected networks. These networks may even have natural monopoly characteristics and may generate substantial externalities. Nevertheless, the speed of technological change in electronics and communications provides a strong argument against government programs to develop or build modern telecommunications infrastructure. The choice of any network architecture is fraught with risk and could require the investment of S1000 or more per subscriber that could easily be obsolete as soon as it is completed. Rather than providing grants of monopoly and relying on the ensuing regulation of network architecture, governments should open their telecommunications sectors to competition, allowing private firms to shoulder the risk of building these expensive new networks. Indeed, the United States has recently moved strongly in this direction after a quarter century of selective telecommunications liberalization that has seen private networks flourish. The evidence on the effect of new telecommunications infrastructure on economic growth is too weak to justify a conclusion that this infrastructure has already created large externalities. As networks proliferate, with private and public systems competing with each other and complementing each other, it will be even more difficult to demonstrate these externalities. Thus, the case for government support and direction of telecommunications infrastructure investment remains very weak.

FCC Regulation, Monopsony, and Network Television Program Costs

In this paper, a television program cost function is derived from a simple model of network rivalry based upon the Cournot postulate. This cost function is then fitted to data from a cross section of new network entertainment series for 1960-1965. The resulting estimates are quite unfavorable to two different aspects of FCC policy towards television broadcasting.

New Zealand Spectrum Policy: A Model for the United States?

In 1989, the New Zealand government began to auction “management rights” to the electromagnetic spectrum, using sealed‐bid, second‐price (“Vickrey”) auctions. Subsequently, the United States began to auction spectrum through ascending‐bid, multiple‐round auctions. Although students of auction processes find the latter type of auction to be the more efficient form, I find that the prices realized in the New Zealand cellular auctions are very similar to those realized in the U.S. Personal Communications Services auctions after adjusting for differences in demographics. The flexibility of the New Zealand management rights should theoretically allow the winning bidders to find the highest‐valued use for the spectrum, but many of the auctioned rights remain unused several years later. A country as small as New Zealand simply cannot be as innovative in finding new uses for the spectrum because of the large initial costs of developing the requisite equipment for using it.

From competitiveness to competition: The threat of minimills to large national steel companies

Abstract Minimill steel companies-re;atively small, efficient producers that use electric furnaces to melt scrap or directly reduced iron ore - have steadily increased their share of US steel production from about 5% in 1970 to more than 35% today, forcing the closure of numerous integrated facilities over this period. Although these minimills received a stimulus from weak scrap prices in the 1980s, their continued success is attributable to lower labour and capital construction costs and steady improvements in electric furnace and rolling technology. Minimills have not yet spread widely to OECD countries outside North America, but they are likely to emerge in these countries unless governments attempt to block them in order to protect their declining large, integrated steel companies.

Is Mandatory Unbundling the Key to Increasing Broadband Penetration in Mexico? A Survey of International Evidence

We examine empirically the proposition that mandatory unbundling is the key to increasing broadband penetration in Mexico. We begin by reviewing the empirical economic literature on the relationship between mandatory unbundling and two measures of economic performance: (1) broadband penetration and (2) investment by entrants and incumbent network owners. We explain why a policy that aims to maximize broadband penetration might be inconsistent with maximizing static and dynamic efficiency. Next, we present new empirical results on the effect of mandatory unbundling on investment by entrants and incumbents. We find that, despite the best efforts of the regulators, no EU country has experienced the promised transition from resale to bitstream to local loop unbundling (LLU). Countries with strong unbundling policies, such as those in the EU, have much lower incumbent network investment than countries that have much less aggressive wholesale unbundling policies, such as Canada and the United States. We conclude with alternative policy recommendations for stimulating broadband penetration in Mexico. Because access to computers is the binding constraint on broadband penetration - only 20 percent of homes own a computer - we propose that Mexico subsidize the price of computers to stimulate broadband adoption.