Telecommunications Policy, Economics & Regulations Scarcity: The concern of How to allocate
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1-6 Agenda Telecommunications Policy, Economics & Regulations Telecommunications Economics Spring 1997 James Alleman Economic Efficiency Demand Supply Regulation Case Studies Interdisciplinary Telecommunications Program University of Colorado Telecommunications Economics Policy and Mangement Economic Efficiency Scarcity: The concern of economic theory. Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Economic Efficiency How can the resources be optimally allocated? Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Spring 1997 University of Colorado James Alleman , Copyright 1996 Economic Efficiency How to allocate limited resources? Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Economic Efficiency Economic Costs: Measures the value of resources used. Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 7-12 Economic Efficiency Demand: Measures the value to consumers of resources. Consumer's willingness to pay Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Economic Efficiency Economic Efficiency Supply and Demand: Determines the allocation of resources. Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Economic Efficiency Supply Price Exception: Market Failure for example, Monopoly. P Demand Quantity Telecommunications Economics Policy and Mangement Q Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Economic Efficiency Spring 1997 University of Colorado James Alleman , Copyright 1996 Demand S' S Price Measures the value of goods and services. P Demand Quantity Telecommunications Economics Policy and Mangement Q Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 13-18 Demand Demand Function of Price Income Price of Other Goods Tastes Price P Quantity Q Telecommunications Economics Policy and Mangement University of Colorado James Alleman , Copyright 1996 Spring 1997 Telecommunications Economics Policy and Mangement Demand Elasticity University of Colorado James Alleman , Copyright 1996 Demand Elastic The Percentage Change in Quantity with respect to a Percentage Change in Price Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Spring 1997 The Percentage Change in Quantity greater than the Percentage Change in Price Telecommunications Economics Policy and Mangement Demand Spring 1997 University of Colorado James Alleman , Copyright 1996 Demand Inelastic Elastic Price The Percentage Change in Quantity less than the Percentage Change in Price P Quantity Q Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 19-24 Demand Demand Consumer's Surplus: Price Value beyond which the consumer pays for a good or service. inelastic P Q Telecommunications Economics Policy and Mangement Quantity Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Demand Spring 1997 University of Colorado James Alleman , Copyright 1996 Supply Function Price Consumer's Surplus P Quantity Telecommunications Economics Policy and Mangement The relationship between quantity and cost (price). Q Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Supply Spring 1997 University of Colorado James Alleman , Copyright 1996 Supply Curve Based on Cost (Incremental) Supply Price Price / Quantity of Inputs P Price of Outputs Quantity Q Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 25-30 Demand & Supply Interaction Supply Price P Demand Quantity Costs / Production Analysis Fixed versus Variable Relevant versus Irrelevant Marginal versus Average Economic versus Accounting Q Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Costs / Production Analysis Irrelevant Historic Costs Sunk Costs Beware of Accounting Costs Allocated Costs Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Costs / Production Analysis Fixed versus Variable Relevant versus Irrelevant Marginal versus Average Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Costs / Production Analysis Relevant Prospective (Future) Costs Spectrum Costs Joint / Common Costs Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Costs / Production Analysis Marginal vs. Average Economic vs. Accounting Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 31-36 Telecommunications Demand Telecommunications Demand Definition of Service Subscribers' Access Demand for Usage Externality Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement University of Colorado James Alleman , Copyright 1996 Spring 1997 Telecommunications Demand Non-Traffic-Sensitive Rate Elements Traffic-Sensitive Rate Elements Universal Service Fund 1% Infomation 2% Subscriber Line Charges (SLC) 35% Long distance Allocations Exchange Allocation Switching 20% $3.30 $5.70 $4.20 $2.90 Transport 25% Carrier Common Line Charge (CCLC) 17% Subscriber Access Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Role of Costs in Pricing Marginal Cost Pricing Ramsey Pricing Other Alternatives Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Economic Efficiency Telephony Guidelines Prices Based on Costs Define Service Correctly Avoid Cross-Subsidies Competition Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 37-42 Economic Efficiency Pricing Practices Subsidies Fixed Costs, Fixed Prices Variable Costs, Variable Prices Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Equity Considerations Universal Service Cross-Subsidies Targeted Subsidies Service Subsidies Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Theory of Monopoly Definition No Cross-Subsidies Targeted Subsidies, if any Subsidies Financed by Government Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Theory of Monopoly Definition Pricing Practices Constraint of Output Sustainability De jure versus de facto X-inefficiency Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Theory of Monopoly Pricing Practices Economies of Scale Economies of Scope Telecommunications Economics Policy and Mangement Economic Efficiency Spring 1997 University of Colorado James Alleman , Copyright 1996 Higher Prices Constrain Output Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 43-48 Monopoly Theory of Monopoly Sustainability Profit Price AC = MC P Demand If economies of scale and scope exit, why would a firm want or need to keep out competition? Quantity Telecommunications Economics Policy and Mangement MR Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Economics of Regulation Rate of Return Rate of Return Regulation Essential Services Alternative Methods Competitive Provision Determining Capital Determining Rate Averch-Johnson Rate Structure Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Cautions and Failures Duopoly Fallacy UK Situation Cellular Phone System Extended Area Service Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Role of Competition Allocation of Resources Incentive for Efficiency Threat of Entry Discipline Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 49-54 Summary Summary (continue) Competition Desirable No Entry Restrictions Specific Transition Period Prices Cost-Oriented Incentive Regulation Targeted Subsidies, if any Regulation in place Anti-Trust Required Interconnection determined Spectrum leased/sold Long Distance -- transition Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996 Agenda Economic Efficiency Demand Supply Regulation Case Studies Telecommunications Policy, Economics & Regulations Telecommunications Economics Spring 1997 James Alleman Interdisciplinary Telecommunications Program University of Colorado Telecommunications Economics Policy and Mangement Spring 1997 University of Colorado James Alleman , Copyright 1996
