Royalties, entry, and spectrum allocation to the broadcasting industry

Abstract

We characterize the socially optimal trajectory of spectrum royalty and firm entry in a deregulated over‐the‐air broadcasting industry. A social planner maximizes consumers' lifetime utility by setting royalties for the use of publicly owned spectrum. As the number of broadcasters adjusts to profits over time, the quality of service improves through greater variety but also deteriorates through intensified interferences. Contrary to observed consolidation and return to concentration in past deregulatory reforms, we find that optimal royalty control that accounts for these quality effects steers the socially optimal trajectory of royalties and firms to a more competitive steady state.

Price and quantity competition in an asymmetric duopoly with licensing

“…24 In terms of government intervention, royalty control is a very common practice. For example, Caputo and Freyens (2017) and Levy, Caputo, and Freyens (2018) discussed how a social planner would be able to maximize consumers' lifetime utility by setting royalties for the use of publicly owned spectrum. subsequently, Firm 2 and Firm 3 simultaneously decide whether to accept the contract.…”