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Royalties, Entry and Spectrum Allocation to Broadcasting

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Abstract

Optimal control theory is employed to characterize the socially optimal trajectory of the royalty per channel and the number of royalty-paying users of state-owned spectrum for broadcasting. The spectrum royalty is set by an omniscient public planner to maximize the sum of the discounted consumers’ utilities over an infinite planning horizon. The number of broadcasters adjusts over time to profits, while the quality of the industry’s service is determined by variety and reception. The trade-off between the benefits of greater variety and the costs of intensified interferences associated with the number of broadcasters is central to the analysis. The convergence of the socially optimal trajectory of the royalty per channel and the number of broadcasters to a steady state and the comparative statics of the steady state are analyzed.

Suggested Citation

  • Amnon Levy & Michael R. Caputo & Benoît Pierre Freyens, 2013. "Royalties, Entry and Spectrum Allocation to Broadcasting," Economics Working Papers wp13-02, School of Economics, University of Wollongong, NSW, Australia.
  • Handle: RePEc:uow:depec1:wp13-02
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    File URL: http://business.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/web/uow141010.pdf
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    References listed on IDEAS

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    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
    2. Thomas W. Hazlett & Roberto E. Muñoz, 2009. "A welfare analysis of spectrum allocation policies," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 424-454.
    3. Steven T. Berry & Joel Waldfogel, 1999. "Free Entry and Social Inefficiency in Radio Broadcasting," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
    4. Massimo Motta & Michele Polo, 1997. "Concentration and public policies in the broadcasting industry: the future of television," Economic Policy, CEPR;CES;MSH, vol. 12(25), pages 293-334, October.
    5. Brendan M. Cunningham & Peter J. Alexander, 2004. "A Theory of Broadcast Media Concentration and Commercial Advertising," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(4), pages 557-575, October.
    6. Simon P. Anderson & Stephen Coate, 2005. "Market Provision of Broadcasting: A Welfare Analysis," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 947-972.
    7. Michael Spence & Bruce Owen, 1977. "Television Programming, Monopolistic Competition, and Welfare," The Quarterly Journal of Economics, Oxford University Press, vol. 91(1), pages 103-126.
    8. Thomas W. Hazlett, 2008. "Optimal Abolition of FCC Spectrum Allocation," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 103-128, Winter.
    9. Webbink, Douglas W, 1973. "Regulation, Profits and Entry in the Television Broadcasting Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 21(2), pages 167-176, April.
    10. Severin Borenstein, 1988. "On the Efficiency of Competitive Markets for Operating Licenses," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 357-385.
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    More about this item

    Keywords

    Broadcasting; Royalties; Spectrum; Optimal Control;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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