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Optimal Administered Incentive Pricing of Spectrum

Author

Listed:
  • Paul Levine

    (University of Surrey)

  • Neil Rickman

    (University of Surrey & CEPR)

Abstract

Administered Incentive Pricing (AIP) of radio spectrum as advocated by Smith/NERA (1996) and recently assessed by Indepen (2003) envisages an incremental path towards e±cient pricing, with revealed and stated prefer- ence methods being used to reveal opportunity costs. We build on the latter to develop and optimal pricing scheme that allows for consumer surplus, in- terference constraints and their implications for productive e±ciency, revenue implications and market structure. We demonstrate the subtle relationship between the interference constraints and the pricing and channel use decisions of network operators. We proceed to show that the optimal AIP is higher in sectors where spectrum can be shared and that it acts as Ramsey tax across sectors of the economy, i.e., is inversely related to the elasticity of demand. As a special case of our model we examine optimal pricing where the regula- tor is constrained to ignore the revenue implications. Then optimal spectrum prices are lower and the relationship between prices and the ability to share spectrum is reversed.

Suggested Citation

  • Paul Levine & Neil Rickman, 2007. "Optimal Administered Incentive Pricing of Spectrum," School of Economics Discussion Papers 1007, School of Economics, University of Surrey.
  • Handle: RePEc:sur:surrec:1007
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    File URL: https://repec.som.surrey.ac.uk/2007/DP10-07.pdf
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    More about this item

    Keywords

    radio spectrum; spectrum pricing; administered incentive pricing;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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