Optimal Administered Incentive Pricing of Spectrum

No 1007, Department of Economics Discussion Papers from Department of Economics, University of Surrey

Abstract: Administered Incentive Pricing (AIP) of radio spectrum as advocated by Smith/NERA (1996) and recently assessed by Indepen (2003) envisages an incremental path towards e±cient pricing, with revealed and stated prefer- ence methods being used to reveal opportunity costs. We build on the latter to develop and optimal pricing scheme that allows for consumer surplus, in- terference constraints and their implications for productive e±ciency, revenue implications and market structure. We demonstrate the subtle relationship between the interference constraints and the pricing and channel use decisions of network operators. We proceed to show that the optimal AIP is higher in sectors where spectrum can be shared and that it acts as Ramsey tax across sectors of the economy, i.e., is inversely related to the elasticity of demand. As a special case of our model we examine optimal pricing where the regula- tor is constrained to ignore the revenue implications. Then optimal spectrum prices are lower and the relationship between prices and the ability to share spectrum is reversed.

Keywords: radio spectrum; spectrum pricing; administered incentive pricing (search for similar items in EconPapers)
JEL-codes: L10 L50 L96 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mkt and nep-net
Date: 2007-10

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