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I am using market inefficiency in the microeconomics term. The auctioning of the scarce resource be it land or spectrum results in a politically induced scarci

I am using market inefficiency in the microeconomics term. The auctioning of the scarce resource be it land or spectrum results in a politically induced scarcity (the power of scarcity) resulting in higher prices than in a competitive market. This politically induced scarcity, or "economic rent" means people are paying more money for the resource than they otherwise would. Money that would go towards other goods and services are spent on cell data instead. Others that at the lower rate without the auction who would marginally be able to afford the use of the cell phones and data would are no longer able to do so. This increases inequality.

pdabbadabba 10y ago
> The auctioning of the scarce resource be it land or spectrum results in a politically induced scarcity (the power of scarcity)... Spectrum is naturally scarce. Many uses are mutually exclusive due to the potential for harmful interference. And today there is far more demand for commercially useful spectrum bands than there is supply. (That, after all, is a primary reason that this spectrum fetches such astronomical prices at auction.) Therefore, it is reasonable for the government to erect a legal regime for allocating this resource efficiently. > ...resulting in higher prices than in a competitive market. How so? The whole point of an auction is to approximate the 'free-market' value of a resource from the outset, thus minimizing the relatively inefficient secondary market transactions that would otherwise be needed in order for the asset to find its true price. An auction, after all, is a competitive market.
- davidf18 10y ago
  > How so? I was trying to communicate that the companies don't pay for the cost of the spectrum, the customers do. Basically, politics have made the cost of cellular communications to customers higher than it should be in a competitive market. Economist (and wealthy businessman) David Ricardo brought up the use of politics to artificially create higher prices using the "Corn Laws" in Britain. This was the case of putting restrictions and tariffs on imported grain which resulted in increased prices for land because of the politically increased scarcity of the grain by limiting imports made domestically grown grain have a higher price which basically means that more (marginal) land was brought into production raising the overall value of all land. Raising the cost of spectrum to consumers creates a regressive tax and increases inequality. https://en.wikipedia.org/wiki/Corn_Laws https://en.wikipedia.org/wiki/Corn_Laws "The Corn Laws enhanced the profits and political power associated with land ownership. Their abolition saw a significant increase of free trade."
  - pdabbadabba 10y ago
    I understand your view is that spectrum auctions increase costs for telecom providers, and that these costs are passed along to consumers. What I am challenging is your assertion that these prices are somehow higher than they would be in a competitive market. I've articulated three primary objections to this position, none of which you seem to have addressed: 1. Spectrum auctions can only be said to 'increase' costs relative to some other, preferable regime. But, as I and others have argued here, there is no preferable regime, for the reasons that I set forth above. 2. Spectrum auctions are a form of artificially/politically imposed scarcity. There is nothing "political" about the scarcity of spectrum. It would be scarce even if there were no FCC (in fact, it would arguably be scarcer due to increased interference). So the government must come up with some way to allocate it efficiently. Auctions are the most efficient choice yet identified because they do the best job of transferring the resources to those who value them the most, without requiring a lot of intermediate, inefficient secondary market transactions. 3. An auction results in higher prices than would a competitive market. The whole point of a spectrum auction is that it is a "competitive market" so I don't understand what you could mean when you say that it results in higher prices than would a competitive market. Is it your point that auctions result in higher initial prices than the market would otherwise find through secondary market transactions if the Commission were to give spectrum away like candy? If so, this is highly counterintuitive. Why should we believe this? The point of the auction, after all, is that is reduces the transaction costs required to find the market price, improving market efficiency, thus lowering prices.
    - davidf18 10y ago
      Perhaps better than using the word competitive, is to use the word efficient market. Efficient markets increase wealth creation which leads to a better economy for all of us. Today, cellular data is an essential, not a luxury as it may have been in the past. Just as the low cost of money is important for wealth creation to encourage capital investment, cellular data is another input where taxing it makes for a market inefficiency thus impinging on wealth creation. Cell firms that pay billions of dollars for spectrum space (and repeatedly for new spectrum as technology advances) pass those billions of dollars they paid on to customers, just as they would the cost of any other input (eg, higher electric prices, more explicit taxes, higher health care costs for employees). From the point of view of wealth creation one should strive for efficient markets, especially in such essentials as cell phone data. A better solution is to simply give the spectrum away to firms such as Verizon, AT&T, Sprint, and T-mobile and other existing firms in their markets just as spectrum was given away to CBS, NBC, etc. for radio and later TV spectrum. Part of the agreement would be to tax cell firms for overly expensive customer charges and possibly to give the poor say, some free data.

pdabbadabba 10y ago

> The auctioning of the scarce resource be it land or spectrum results in a politically induced scarcity (the power of scarcity)... Spectrum is naturally scarce. Many uses are mutually exclusive due to the potential for harmful interference. And today there is far more demand for commercially useful spectrum bands than there is supply. (That, after all, is a primary reason that this spectrum fetches such astronomical prices at auction.) Therefore, it is reasonable for the government to erect a legal regime for allocating this resource efficiently. > ...resulting in higher prices than in a competitive market. How so? The whole point of an auction is to approximate the 'free-market' value of a resource from the outset, thus minimizing the relatively inefficient secondary market transactions that would otherwise be needed in order for the asset to find its true price. An auction, after all, is a competitive market.

davidf18 10y ago
> How so? I was trying to communicate that the companies don't pay for the cost of the spectrum, the customers do. Basically, politics have made the cost of cellular communications to customers higher than it should be in a competitive market. Economist (and wealthy businessman) David Ricardo brought up the use of politics to artificially create higher prices using the "Corn Laws" in Britain. This was the case of putting restrictions and tariffs on imported grain which resulted in increased prices for land because of the politically increased scarcity of the grain by limiting imports made domestically grown grain have a higher price which basically means that more (marginal) land was brought into production raising the overall value of all land. Raising the cost of spectrum to consumers creates a regressive tax and increases inequality. https://en.wikipedia.org/wiki/Corn_Laws https://en.wikipedia.org/wiki/Corn_Laws "The Corn Laws enhanced the profits and political power associated with land ownership. Their abolition saw a significant increase of free trade."
- pdabbadabba 10y ago
  I understand your view is that spectrum auctions increase costs for telecom providers, and that these costs are passed along to consumers. What I am challenging is your assertion that these prices are somehow higher than they would be in a competitive market. I've articulated three primary objections to this position, none of which you seem to have addressed: 1. Spectrum auctions can only be said to 'increase' costs relative to some other, preferable regime. But, as I and others have argued here, there is no preferable regime, for the reasons that I set forth above. 2. Spectrum auctions are a form of artificially/politically imposed scarcity. There is nothing "political" about the scarcity of spectrum. It would be scarce even if there were no FCC (in fact, it would arguably be scarcer due to increased interference). So the government must come up with some way to allocate it efficiently. Auctions are the most efficient choice yet identified because they do the best job of transferring the resources to those who value them the most, without requiring a lot of intermediate, inefficient secondary market transactions. 3. An auction results in higher prices than would a competitive market. The whole point of a spectrum auction is that it is a "competitive market" so I don't understand what you could mean when you say that it results in higher prices than would a competitive market. Is it your point that auctions result in higher initial prices than the market would otherwise find through secondary market transactions if the Commission were to give spectrum away like candy? If so, this is highly counterintuitive. Why should we believe this? The point of the auction, after all, is that is reduces the transaction costs required to find the market price, improving market efficiency, thus lowering prices.
  - davidf18 10y ago
    Perhaps better than using the word competitive, is to use the word efficient market. Efficient markets increase wealth creation which leads to a better economy for all of us. Today, cellular data is an essential, not a luxury as it may have been in the past. Just as the low cost of money is important for wealth creation to encourage capital investment, cellular data is another input where taxing it makes for a market inefficiency thus impinging on wealth creation. Cell firms that pay billions of dollars for spectrum space (and repeatedly for new spectrum as technology advances) pass those billions of dollars they paid on to customers, just as they would the cost of any other input (eg, higher electric prices, more explicit taxes, higher health care costs for employees). From the point of view of wealth creation one should strive for efficient markets, especially in such essentials as cell phone data. A better solution is to simply give the spectrum away to firms such as Verizon, AT&T, Sprint, and T-mobile and other existing firms in their markets just as spectrum was given away to CBS, NBC, etc. for radio and later TV spectrum. Part of the agreement would be to tax cell firms for overly expensive customer charges and possibly to give the poor say, some free data.