I’m puzzled by Harold Feld’s latest post. Last month, Harold laid out his argument that society faces a tradeoff between allocating the wireless spectrum to the highest bidder and maintaining competition in wireless services. I responded by showing geometrically that in most cases, efficient production is much more important than maximal competition; in economics, trapezoids are bigger than triangles.
Harold seemed to get it. My argument was only an intuitive one, but he admitted that he needed to be more rigorous to show that competition in the wireless industry is more important than lowering the cost of producing wireless services.
My response to @elidourado is that we have dueling intuitions. When the FCC goes to set rules, we will both need more rigor.
— haroldfeld (@haroldfeld) February 20, 2012
Today, Harold reprised nearly the same post, without additional economic rigor, and at greater length. So maybe you can see why I’m puzzled.
I continue to believe that trapezoids are bigger than triangles. But for this post, let’s put that issue to the side to focus on duopoly, of which Harold seems to have a visceral fear. He’s probably not alone.
Duopoly sounds really bad, because it’s 1 away from monopoly. But modern economists tend not to place too much emphasis on the number of competitors in an industry, at least not in isolation from other factors. For instance, it is well understood that under what is known as a Bertrand duopoly, economic profits to the firms are zero, and the price to consumers is as low as it is when there are many firms. That does not sound too scary, does it?
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.