Nodir Adilov, Peter J. Alexander, and Brendan Cunningham, Environmental and Resource Economics, 2014.
Space debris, an externality generated by expended launch vehicles and damaged satellites, reduces the expected value of space activities by increasing the probability of damaging existing satellites or other space vehicles. Unlike terrestrial pollution, debris created in the production process interacts with firms' final products, and is, moreover, self-propagating: collisions between debris or extant satellites creates additional debris. We construct an economic model to explore private incentives to launch satellites and to mitigate space debris. The model predicts that, relative to the social optimum, firms launch too many satellites and under-invest in debris mitigation technologies. We discuss remediation strategies and policies, and calculate a socially optimal Pigovian tax.
Nodir Adilov, Peter J. Alexander, and Brendan M. Cunningham, The B.E. Journal of Economic Analysis and Policy, 2012.
A cable operator chooses to bundle or provide programs a la carte by striking a balance between maximizing total surplus and minimizing transfer payments to program providers. Using general demand and cost functions, we show that a cable operator's decision to bundle maximizes total producer surplus if the cable operator's bargaining power is sufficiently high, and that a cable operator in a weak bargaining position might strategically choose to unbundle viewer channels in order to enhance its bargaining position with individual program suppliers, even when this decision reduces total surplus. It is, therefore, plausible that regulations to cap market share or impose a la carte on cable operators may reduce total surplus, and absent offsetting increases in consumer welfare, such policy measures may reduce total welfare. Under more restrictive conditions, we extend the analysis and show that consumer and social welfare under bundling or a la carte depends on both bargaining power and advertising rates. Our results imply a monopolist does not necessarily increase deadweight loss, and under certain circumstances a monopolist's bargaining outcomes yield higher social welfare.
Brendan M. Cunningham and Peter J. Alexander, Journal of Information Policy, 2012.
We explore a model of price setting in unregulated network industries and find that subscription and interconnection charges are determined by the level of markups and competition in the relevant market segments. Our model predicts that costly interconnection emerges when there is a low level of competition in the subscription market segment. Our model also provides a positive theory of peering: when competition for subscribers is high individual firms will optimally set interconnection charges to zero in order to maximize network effects and increase the total number of subscribers. We further employ our model to investigate the impact on traditional telecommunications providers of changing from a costly to a free interconnection regime. If there is symmetry in the industry, a transition to peering may ultimately increase profits. Under asymmetry a transition to peering creates winners and losers, in part according to the pattern of traffic on the network. Our results suggest that network neutrality concerns may become less pressing as a consequence of the transition to VoIP due to enhanced competition. However, relaxed regulatory review of mergers could result in additional pressure for interconnection regulation. Further, we suggest that through contracting practices a government can alter the topology of traffic flows and indirectly compensate firms that have a vested interest in maintaining costly interconnection.
Brendan M. Cunningham, Peter J. Alexander, and Adam Candeub, Information Economics and Policy, 22, 2010.
We present a model of consumer and firm behavior in mobile markets in order to identify the role of termination charges in determining the market equilibrium. Our model predicts a "waterbed effect,' that is, high termination rates will be associated with low subscription prices, if preferences are the main source of variation in termination rates. If costs are the main driver of termination rates our model predicts a "tide" hypothesis in which high termination rates exist alongside high subscription prices. We test these predictions and find evidence that mobile termination rates are positive and significantly related to mobile phone adoption. We also find that competition, internet subscriptions, and a free press are positively associated with mobile phone adoption while fixed termination rates and inequality slow the adoption of mobile technologies.
Nodir Adilov and Peter J. Alexander, Economics Letters, 2006.
Under the assumption of a symmetric Nash equilibrium, Raskovich (2003) suggests that becoming "pivotal" via merger worsens a merging buyer's bargaining position. We generalize the pivotal buyer model to allow for an aysmmetric division of the surplus among firms. We show that a merging buyer's bargaining position increases post-merger if a bargaining power effect dominates a pivotal buyer effect. This result may be of interest to antitrust and regulatory agencies.
Keith Brown and Peter J. Alexander, Economics Letters, 2005.
We test the relationship between market structure, the price of advertising, and the number of viewers in broadcast televison markets, employing FCC license allocations as an instrument for structure. We find a positive relationship between concentration, advertising price, and viewership.
Brendan M. Cunningham and Peter J. Alexander, Journal of Public Economic Theory, 2004.
We analyze a model in which the interaction of broadcasters, advertisers, and consumers determines the level of nonadvertising broadcast produced and consumed. Our main finding is that an increase in concentration in broadcast media industries may lead to a decrease in the total amount of nonadvertising broadcasting. The strength of this inverse relationship depends, in part, on the behavioral response of consumers to changes in advertising intensities. We also present a numerical general equilibrium solution to our model and demonstrate a positive relationship betwen consumer welfare and the number of firms in the broadcast industry.
Keith Brown and Peter J. Alexander, International Journal of Media Management, 2004.
Bundling can be a pricing mechanism by which monopolists capture economic surplus from consumers. We suggest that given the cost structure of media markets, channel bundling in the cable and satellite market could also emerge in a competitive environment. A la carte channel pricing on cable television may or may not increase consumer welfare and could reduce total welfare. Because bundling may create other problems, policymakers may consider allowing cable and satellite networks to sell packages of channel space to viewers at a given price, allowing viewers to choose which channels they want in their packages. We term this option quasi-bundling.
Peter J. Alexander and Brendan M. Cunningham, International Journal on Media Management, 2004.
The relationship betwen the structure of a market and the diversity of its product offerings has been extensively explored by theorists. We develop two measures of diversity and explore the content of local news for sixty stations and twenty designated market areas in the United States. Using a relative station-level diversity metric, ordinary least squares estimates imply that relative diversity of local news content decreases as market concentration increases. This result is not, however, robust to instrumental variables specification. Using a total market diversity metric, the Herfindahl-Hirshman Index is significant in OLS and robust to instrumental variable estimation. Because the total market diversity metric is arguably superior to the incremental metric as a measure of overall diversity, this result is useful - it suggests that the total diversity of local news content within a designated market area is sensitive to the level of concentration.
Peer-to-peer file sharing communities present a paradox for standard public goods theory, which predicts that free-riding should preclude the success of the community. We present a model in which users choose their level of sharing, downloading, and listening in the presence of sharing costs and endogenous downloading costs. In our model, sharing emerges endogenously, largely as a byproduct of users' attempts to reduce own-costs.
Peter J. Alexander, Review of Industrial Organization, 2002.
The music recording industry is a highly-concentrated five firm oligopoly. Much of the dominance achieved by larger firms in the industry results from control over the distribution and promotion of the products of the industry. Alexander (1994) predicted that new compression routines would facilitate the efficient transfer of digital music across the internet. MP3 compression routines have made such transfers relatively simple and efficient. While smaller new entrants have not yet been able to exploit this new technology in terms of market share, an element of uncertainty exists regarding the sustainability of the prevailing structure, due to large-scale non-sanctioned file sharing. Despite the industry's legal efforts to suppress non-sanctioned file distribution, peer-to-peer networks may render these efforts futile.
Peter J. Alexander, Journal of Economic Behavior and Organization, 1997.
The relationship between market structure and product variety is critical, since too few or too many products may be produced given a particular market structure. This paper measures empirically the relationship between structure and variety in the music recording industry. Entropy is used to generate a measure of product variety. The results suggest that the relationship is non-monotonic: high and low levels of concentration result in lessened variety, and maximum variety is promoted by a moderately concentrated structure.
We develop an entropy measure of diversity in the products of the music recording industry, using sheet music as product blueprints. This new measure improves over simple product counting techniques that have dominated the literature, and helps highlight the business stealing effects of highly competitive market structures. In short, a competitive market structure may generate innovation, but competition does not necessarily generate high levels of product diversity. The entropy measure also suggests that high levels of industry concentration diminish diversity.
Peter J. Alexander, Journal of Cultural Economics, 1994.
This paper explores how new scale-reducing technology induced two periods of substantial new entry into the music recording industry. Many of the new firms were product innovators, whose products became popular with consumers. This in turn lead to shifts in the distribution of industry market share, and hence market structure. Reconcentration in the industry resulted largely from horizontal mergers, among other reasons. New digital distribution networks may induce a third-wave of industry deconcentration.
This article models the product release behavior of multi-product firms in the music recording industry. The model predicts that increasing industry concentration may result in an apportionment of the market among the existing firms, and fewer new product releases. Even though the minimumm efficient scale of production in the industry is modest, the apportionment outcome is stabilized by the existence of entry barriers that raise the costs of potential competitors or new entrants.