Archive for June, 2010

ADD and the FCC

Friday, June 25th, 2010

The deadline for comments regarding the Comcast/NBCU merger has come and gone, resulting in over 10,000 filings from a wide variety of groups.  From fears over loss of diversity to concerns over media localism, many commenters seem to see the process as a vehicle for their favorite causes rather than as a review of the effects of the merger itself.

In light of this, it seems like a good time to highlight the recent TPI paper by James Speta, “Screening and Simplifying the Competition Arguments in the NBC/Comcast Transaction.”  In the paper, he states that antitrust analysis of the proposed merger between Comcast and NBC Universal should focus only on its effect on competition in relevant markets and resulting harm to consumers.  Specifically, the analysis should ask:

  • Does the transaction actually make matters worse in a relevant way, in a relevant market?  For example, claims that cable companies behave badly by charging high prices to consumers are irrelevant unless the merger increases market power in a way that allows the cable companies to increase prices even more.  Similarly, claims that the broadcast market is not performing well are irrelevant because the transaction does not relevantly change the broadcasting market – it simply changes control of the stations.
  • Does the transaction injure competition in a manner that harms consumers?  Antitrust laws are designed to protect “competition not competitors.”  Thus, claims that the merger will harm certain competitors because a merged NBC-Comcast will be able to offer uniquely attractive products or services do not mean that the transaction injures competition in the manner that the antitrust law recognizes.

Hopefully, regulators will focus on the task at hand and not be distracted by irrelevant—even if well-meaning—comments filed in the proceeding.

Research Roundup #3

Monday, June 21st, 2010

Today’s Roundup features a variety of papers from authors at organizations ranging from law schools and university economics departments to the research arm of a major investment bank.  Note the paper by Grimes and Ren, which offers a rare empirical analysis of high speed Internet access and firm productivity.  In addition, two articles discuss web search and social network data as tools for economic study (under the heading below of “Tech and Macroeconomics”).

(Click through to the full post to see the list of papers and abstract excerpts)

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The FCC Tries to Find Its Way

Monday, June 21st, 2010

Three months after the Comcast decision the FCC issued a Notice of Inquiry (NOI) asking, basically, “what should we do now?”  Not being a lawyer, I have a difficult time understanding, let alone caring, whether the FCC’s regulatory authority derives from Title I or Title II.  As an economist, however, I do care about the content of proposed regulations.

So what problem does this NOI seek to solve?  It does not propose directly any new rules industry must follow.  Instead, it seeks a framework in which the FCC can regulate broadband in the future.

In other words, this NOI does not address how industry should behave, but rather how the FCC itself should behave.  Somewhat ironically, therefore, this NOI asks how to regulate the FCC, and reveals an existential problem for the Commission: what is it supposed to do, and does it have the authority to do it?

The Commission is to be commended for laying out the legal issues, but the road forward it proposes is inherently flawed.  Consider that scholars of new institutional economics generally agree that in order to be effective, regulatory institutions must meet several criteria: they must be independent from short-term political influence, transparent, accountable, and have clear limits on the extent of their jurisdiction.[1]

The NOI highlights the problem the FCC now faces as an institution—it does not know the extent or limits of its jurisdiction.  Ultimately, the FCC cannot set those boundaries itself.  Instead, it is up to Congress to define the FCC’s mission and the Courts to define the extent of its authority within its legislative mandate.

The current confusion is not the FCC’s fault.  Our telecommunications laws are antiquated and no longer appropriate for the fast-changing world of broadband and information technologies.  No amount of reclassification, forbearance, or other fancy footwork can change that basic fact.

It is time for Congress to rewrite our telecommunications laws in ways that do not rely on arbitrary definitions of services, and instead create an analytical framework flexible enough to accommodate these rapidly changing industries.  A new telecommunications law could recognize, for example, the inherent antitrust issues in many current debates, such as the question of vertical relationships underlying net neutrality.

Such a rewrite involves risks, to be sure.  Every interest group will fight to influence the process for good and ill, nobody will end up entirely happy, and we could end up with laws worse than those we have today.  Regardless, we could at least rest assured that a new law would better reflect the will of the people, as expressed through their elected representatives, than would the FCC’s current attempt to fit a square peg in a round hole.

Congress already appears to be taking the beginning steps in rewriting the 1996 Telecommunications Act.  It should view the NOI as a cry for help and further evidence that it should take action.  A regulatory agency simply cannot function properly when it has to ask in a public notice what it is allowed to do and how.  The courts have attempted to define boundaries in recent decisions, but the Commission believes it must act to meet Congress’s objectives.  But only Congress can define its objectives, and the time has arrived for it to do so.


[1] See Noll (2000) or Wallsten, et al (2004) for discussions (Noll, Roger. 2000. Telecommunications Reform in Developing Countries. SIEPR Policy Paper. Wallsten, Scott, George Clarke, Luke Haggarty, Rosario Kaneshiro, Roger G. Noll, Mary Shirley, and Lixin Colin Xu. 2004. New Tools for Studying Network Industry Reforms in Developing Countries: The Telecommunications and Electricity Regulation Database. Review of Network Economics 3, no. 3: 248-282.)  See also Weiser (2009) for a discussion of institutional features of Internet regulation (Weiser, Philip J. 2009. The Future of Internet Regulation. Legal Studies Research Paper Series 09, no. 02).

The Case of Newspapers

Friday, June 4th, 2010

The Office of Policy Planning at the FTC has just issued the “Federal Trade Commission Staff Discussion Draft: Potential Policy Recommendations to Support the Reinvention of Journalism.”

This is a very strange document. It is written by “FTC staff in the Office of Policy Planning” but we cannot tell who actually wrote the draft. Moreover, no reason is given for writing the document. It is not a research paper (of the sort written in the Bureau of Economics) and there is no indication that it has been written in response to a Congressional inquiry. The missions of the FTC are antitrust and consumer protection, and this draft has little to do with either of these areas of responsibility.

Basically, this report is an exercise in industrial policy.

Is There a Problem?

The report tells us (as is obvious) that traditional print media are suffering. It also claims, with little rationale, that this is a public policy problem. The problem arises because “studies have shown that newspapers typically provide the largest quantity of original news to consumers…” But in a document with 180 footnotes, there is no source for the “studies” and so we cannot tell, for example, when these studies were completed. Moreover, just because newspapers have traditionally performed an important function does not mean that they are the only way this function could be done. A similar report in 1600 would have lamented the downfall of town criers.

Although the Draft on page 1 claims to be interested in policies which are “platform neutral,” on page 2 we learn that “most of the discussion in this document will use the perspective of newspapers…”  On page 5 we are told that because “newspapers have not found a new, sustainable business model…it is not too soon to start considering policies that might encourage innovations to help support journalism into the future.” In other words, the problem that this report is addressing is the problem of newspapers, not of news.

In a world where everyone with an internet connection has access to huge amounts of raw news and where anyone with a telephone camera who observes a newsworthy event can instantly post the video on numerous sources such as YouTube, it is difficult to understand why the FTC staff thinks we are in a situation where there is not enough news.

Moreover, the Tea Party movement has shown that people can learn about actionable news in time to actually take action. Newspapers were not the major source people used to learn about this movement, but the information spread quickly.

The True Purpose of the Report

In fact, this document is a defense of a traditional liberal ally, the American newspaper. Newspapers are in trouble but that does not mean that news is in trouble. One way to see the FTC perspective is to note that neither opinion blogs nor talk radio are mentioned in the report. These are two of the types of media that are replacing traditional news, but not supporting the liberal causes that the current FTC favors.

Economists are aware of the danger of industrial policy – of trying to pick winners and losers (or, in this case, of trying to turn a loser into a winner). Such policy is always wasteful because markets are better than governments at figuring out what investments are worthwhile. But when the industry involved is responsible for informing people about important issues of the day, and especially political issues, then the dangers of government involvement are especially large. This report tries to appear neutral, but it illustrates the dangers that we should be protected from by the First Amendment.

Fear of Drug Information

Wednesday, June 2nd, 2010

The Internet has opened huge number of possibilities for information and communication.  As the medium evolves, clever people are continually finding new applications.  But as soon as someone comes up with a new way of using the web, we can be sure that “privacy advocates” will quickly be along to warn against the “dangers” of this application.

One relatively new way in which people are using the Internet is that patients with particular medical conditions are able to find and communicate with each other.  A recent New York Times article has addressed this type of communication: “When Patients Meet Online, Are There Side Effects?”, Natasha Singer, May 28, 2010.

Some of the article is positive and discusses the benefits of such information sharing:  “Members can seek out patients of the same age, sex, and disease progression, whose profiles are displayed on the site, to see which drugs or doses worked for them. Drug makers can pinpoint subgroups — say, severely depressed middle-aged men — who reported the greatest improvement on a particular medication.”

But as is common with any article about information on the internet, the article quickly begins discussing what it views as negatives. Even the title references “Side Effects” and not benefits.  Moreover, many of these sites have various connections with drug makers.  To the Times, this raises some questions:

 “But pharmaceutical crowd-sourcing also raises important questions about the trade-off between the benefits of information sharing and the risk of patient exploitation.

 “Some people share their health information for the sake of the greater good. Yet they typically have no way of knowing whether their health profiles contribute directly to the development of more effective treatments — or are simply mined to create more effective drug marketing.”

These two paragraphs contain lots of hidden assumptions.  By patient “exploitation,” it appears that the author means selling patients drugs, but selling someone something that they want and that may provide benefits is not “exploitation.”   Moreover, marketing is contrasted with “development of more effective treatments,” implying that one is good but the other bad.  But creation of more effective drug marketing generally means finding out ways in which to better match patients and treatments – a socially useful activity.

Of course, one of usual suspects among privacy advocates is also quoted:  “’We are talking about a digital pharma stealth economy that is emerging,’ says Jeff Chester, the director of the Center for Digital Democracy, a nonprofit group that works to safeguard user privacy.”  The Times sees no need to quote anyone who takes a different view on information and privacy.  Apparently, one side is enough to represent.

The FDA  also appears to be concerned about this “digital pharma stealth economy” and has been looking into the drug advertising market.  According to the article, the FDA “is still developing a policy on drug marketing through social media.”  We can only hope that the FDA does not stifle this very useful set of tools because of the fears of the privacy advocates and others with similar beliefs.