Three essays on economic issues in telecommunications

Abstract

In Chapter 1, we construct a model to illustrate conditions under which a government controlled Post, Telephone, and Telegraph ministry (PTT), which is a monopolist in multiple demand-complementary markets, can increase its profit by exiting some of its markets. The PTT may increase profit by exiting one market, provided that a foreign firm can supply the market at lower cost and the PTT retains market power in a complementary market, where it recovers the difference. The PTT will generally earn greater income by regulating and taxing the abandoned market than by allowing it to become competitive. However, consumer welfare would be greater if the PTT were to permit competition in the abandoned market. In Chapter 2, we use Heckman's model for consistent estimation on selected data, modified to allow for group dummies in the second-stage regression, to estimate supply of wireless telephone subscription, on a panel of data. The modification enables us to control for country-specific effects, and to adjust for the penetration that would otherwise exist in years and countries where wireless is unavailable. We find substantial bias in the estimate of the supply function. That is, equivalent economic conditions in countries where wireless is not yet available will likely result in lower levels of supply than those where wireless is available. The quantity of wireless telephones supplied is explained by time, the number of existing fixed telephone lines, and telephone company revenues, but not by prices. In Chapter 3, we construct a means of resource allocation on a data network when bandwidth becomes scarce. Our approach extends Elwalid and Mitra's (1992) model so that two users may send streams of information to a router, which employs an auction mechanism to award priority to one stream when the router is congested. The high bidder in this auction enjoys the right to transmit data without risk of loss, whereas the low bidder loses data during congested periods. The second-price auction offers its property of incentive compatibility in this real-time framework. Allocations arising from this mechanism are more economically efficient than those in which information is discarded without regard to economic value.