RE: regulation/deregulation of communications

[David Farber <farber () tmail com>]

-----Original Message-----
From: Faulhaber, Gerald <faulhabe () wharton upenn edu>
To: Dave Farber <dave () farber net>
Subject: RE: [IP] regulation/deregulation of communications
Date: Wed, 08 Jan 2003 23:05:23 -0500

David (not djf) is confusing the concept of natural monopoly with its 
application to the telephone business.

To say that "natural monopoly" is a discredited concept in economics is 
simply false.  It is a clearly defined concept dating back to John 
Stuart Mill, and more recently refined by many others (among them, 
moi).  Most generally, a natural monopoly is an industry in which the 
firm's cost function is subadditive.  In the special case of a single 
product firm, the industry is characterized by declining average cost.

Whether or not the telephone industry is a natural monopoly is an 
empirical question: does it exhibit cost subadditivity?  If it does, 
then it's a natural monopoly; if it does not, then it isn't.  But the 
validity of the concept does not depend upon whether or not the 
telephone biz has it.

Many have argued it isn't (ncluding me).  But be very clear: if it is 
not a natural monopoly, then there is no economic reason to regulate 
it.  We need only open the market to competition and bad behavior will 
be punished by aggressive entry.  Natural monopoly was the sole economic 
reason the industry was regulated in the first place.  If it isn't a 
monopoly, then good-bye FCC and state regulators.

Be careful what you ask for; you may get it.

Gerry Faulhaber

-----Original Message-----
From: Dave Farber [mailto:dave () farber net]
Sent: Wednesday, January 08, 2003 5:59 PM
To: Faulhaber, Gerald
Subject: FW: [IP] regulation/deregulation of communications



------ Forwarded Message
From: "David P. Reed" <dpreed () reed com>
Date: Wed, 08 Jan 2003 17:44:45 -0500
To: dave () farber net, David Feldmeier <dfeldmeier () gazelletech com>
Subject: Re: [IP] regulation/deregulation of communications

David - "natural monopoly" is a discredited concept in economics.

That means it is far from accepted wisdom.

The idea that it "does not make sense" to provide multiple connections 
was
a *political* argument, not a result of natural law.   And if you 
think
about it, there are lots of reasons to provide multiple connections.

For example, The Phone Company goes to lots of expense to provide 
power
over its phone lines that is independent of the electric utility's 
power.

That's an economic choice of architecture whose value can be
calculated.  But it isn't an essential thing.   If electric power 
systems
had pre-dated phone systems by a decade or two in universal 
deployment,
we'd probably have phones that draw energy from wall sockets.

The modularity of business architecture and the modularity of 
technology
architecture is constantly shiftable as both deployment and costs 
shift.

Natural monopoly is *at best* a temporary optimum in business 
architecture.

When it is used to argue against new competition, the concept itself
becomes a tool of competition for regulatory protectionism.

For example, why shouldn't I get my communications bandwidth over the 
power
line?   I can then get telephony much cheaper, perhaps, using VoIP
technology.   So what if it wipes out The Phone Company's monopoly
guaranteed profits?


------ End of Forwarded Message
-- Dave

-------------------------------------
You are subscribed as interesting-people () lists elistx com
To unsubscribe or update your address, click
 http://v2.listbox.com/member/?listname=ip

Archives at: http://www.interesting-people.org/archives/interesting-people/