LEFT FOR DEAD: ANTI‐COMPETITIVE BEHAVIOR IN ORBITAL SPACE

Nodir Adilov, Brendan M. Cunningham, Peter J. Alexander, Jerry Duvall and Daniel R. Shiman

Economic Inquiry, 2019, vol. 57, issue 3, 1497-1509

Abstract: In a dynamic investment framework with depreciation, we show incumbent satellite operators have incentives to “warehouse” a fraction of their assigned spectrum and orbital slots, keeping nonoperational assets in place, which reduces output, increases prices, and diminishes social welfare. Exploring three distinct market structures, we model firms' incentives to warehouse, and show conditions under which firms choose to warehouse rather than replace nonfunctioning satellites. We find a dominant firm with a competitive fringe produces more and longer duration warehousing relative to perfect competition or monopoly. Regulators could remediate warehousing by increasing a firm's marginal costs, or by increasing the probability of reallocating orbital slots that do not have a fully functioning satellite. (JEL L9, L5)

Date: 2019
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