Chapter 2: Ronald Coase and the spectrum question
Thomas W. Hazlett1 COASE’S QUERY On his way to discovering the ‘Coase theorem’ and picking up a Nobel Prize in Economics, Ronald Coase was put to the task of understanding the US government’s arguments for allocating radio spectrum according to ‘public convenience, interest, or necessity’ (Federal Radio Act, 1927).2 In the First Amendment to the US Constitution, the state is speciﬁcally enjoined from regulating a particular industry: ‘Congress shall make no law abridging freedom of speech . . . or of the press;’ Yet, American radio and television broadcasters were licensed by a federal regulatory commission, and no entry – no airwave speech – could occur absent a government ﬁnding that the new competition was in the public interest. The conﬂict was seemingly resolved in a 1943 US Supreme Court decision, NBC v. the United States.3 The case formed a crucial legal precedent, determining the contours of constitutional protections in the era of the electronic press. What caught Coase’s attention, however, was the economic rationale for regulation that constituted the basis of the court’s decision. While licensing a newspaper would violate the First Amendment, the high court granted the Federal Communications Commission (FCC) wide latitude to license radio and TV stations and to mandate rules governing content.4 The Court’s justiﬁcation was that broadcast frequencies were unique economic resources. Whereas anyone could purchase a printing press and newsprint, jumping into the newspaper market, airwaves were subject to ‘physical scarcity’. Given that there were many more potential broadcasters than there were available...
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