Utility Regulation in Competitive Markets

Utility Regulation in Competitive Markets

Problems and Progress

Edited by Colin Robinson

This significant new volume contains incisive chapters on a number of prominent concerns, including changes in the British system of utility regulation, the spectrum allocation question, liberalisation of EU energy markets, security of supply issues, reform in the European postal sector, the future of rail regulation, the cost of capital and Ofcom’s strategic approach to regulation. Chapters on each topic are followed by comments from regulators, competition authority chairmen and other experts in the relevant fields. By confronting the most important international developments in utility regulation, the authors offer practical policy recommendations for an effective way forward.

Chapter 2: Ronald Coase and the spectrum question

Thomas W. Hazlett

Subjects: economics and finance, competition policy, public sector economics


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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