64 Federal Communications Law Journal 319 (2012)
The FCC's 14th and 15th Annual Wireless Competition reports review a wide variety of evidence, both direct (how firms and customers behave) and indirect (industry concentration measures) in making its competitive assessment. The reports are silent on how to interpret this evidence. In contrast, modem antitrust analysis relies far more on direct evidence. In failing to put more weight on the relevant direct market evidence to reach an informed competitive assessment, the 14th and 15th reports invite erroneous conclusions about the state of competition in wireless markets. The authors are concerned that these erroneous conclusions eventually could adversely influence regulatory policy in wireless markets. Before economists came to rely on direct measures of market power, they relied on indirect measures, such as market share in the relevant markets, the Herfindahl-Hirschman Index ("HHI"), and market definitions. The 14th and 15th reports downplayed direct evidence of competition-namely, aggressive pricing behavior, robust entry, and continued long-term reductions in price, all of which strongly support a conclusion of "effective competition." Instead, the FCC focuses on inferences of market power based on market shares. To test the FCC's presumed relationship between market structure and prices in the wireless industry, the authors analyzed the TNS Telecoms database of cellular telephone bills. The authors found no statistically significant relationship between a household's monthly wireless bill and the HHI of the economic area in which the household resides. Thus, market concentration does not appear to have an impact on what the customer actually pays. This finding, along with the fact that wireless prices have declined over time as industry concentration has increased, undermines the structure-conduct hypothesis that undergirds the FCC's market-share analysis.
Faulhaber, Gerald R.; Halm, Robert W.; and Singer, Hal J.
"Assessing Competition in U.S. Wireless Markets: Review of the FCC’s Competition Reports,"
Federal Communications Law Journal:
2, Article 4.
Available at: http://www.repository.law.indiana.edu/fclj/vol64/iss2/4