Indirect Network Effects and Adoption Externalities

The conventional wisdom is that indirect network effects, unlike direct network effects, do not give rise to externalities. In this paper we show that under very general conditions, indirect network effects lead to adoption externalities. In particular we show that in markets where consumption benefits arise from hardware/software systems, adoption externalities will occur when there are (i) increasing returns to scale in the production of software, (ii) free-entry in software, and (iii) consumers have a preference for software variety. The private benefit of the marginal hardware purchaser is less than the social benefit since the marginal hardware purchaser does not internalize the welfare improving response of the software industry, particularly the increase in software variety, on inframarginal purchasers when the market for hardware expands.Network Externalities, Network Effects

Wireless Competition in Canada: Damn the Torpedoes! The Triumph of Politics over Economics

Last year featured a high stakes battle between two mighty protagonists. On one side, allegedly representing the interests of all Canadians, the federal government. On the other side, Bell, Rogers, and Telus. The issue at stake: What institutions should govern the allocation of resources in the provision of wireless services? Should the outcomes — prices, quality, availability, and other terms of service — be determined by the market? Or should the government intervene? The answer to these questions should depend on the extent of competition and the ability of wireless providers to exercise inefficient market power — raise prices above their long run average cost of providing services. Do Bell, Rogers, and Telus exercise substantial inefficient market power? The accumulated wisdom of market economies is that state intervention inevitably is very costly, given asymmetries of information, uncertainty, and political pressure. At the very least the onus on those demanding and proposing government action is to provide robust evidence of the substantial exercise of inefficient market power. This paper is a contribution to the ongoing debate regarding the existence and extent of market power in the provision of wireless services in Canada. The conventional wisdom that competition in wireless services was insufficient was challenged by our earlier School of Public Policy paper.†† In that study we demonstrated that the Canadian wireless sector was sufficiently competitive. The evidentiary record we developed was not consistent with a robust finding of a substantial exercise of inefficient market power; policy efforts to create and sustain more competition were unlikely to be successful without ongoing subsidization; and to the extent those efforts were successful, they would likely to lead to an inefficient allocation of scarce resources, with the benefits of additional competition less than its costs. The federal government’s standard bearer in this debate has been the Competition Bureau. The Competition Bureau has made submissions and commissioned expert evidence in regulatory proceedings that conclude that there is market power in the provision of wireless services in Canada and there are substantial benefits to enhancing competition. This follow-up paper is a critical assessment of the Competition Bureau’s submissions and the expert evidence on which it is based. We remain unconvinced that market power is a problem in wireless services or that additional competition in wireless services is efficient. As explained at length in this paper, the expert evidence prepared for the Competition Bureau on both points is simply insufficient to warrant regulation and subsidization of competition. The evidence with respect to market power is inconsistent with substantiality and it is not robust. The expert evidence does not address whether entry is efficient. Instead it provides only an estimate of the competitive benefits of a fourth national entrant — not its costs — and it does not assess the financial viability of a fourth national competitor. The assessment of the competitive benefits of entry are unreliable, attributable to both the methodologies used by the expert and the assumptions required to implement its simulation methodology. The lack of fit between outcomes derived from the model and calibrated parameters with observed values indicate that the concerns over the specification and assumptions in implementing the model are well-founded. Its inaccuracies pre-entry cast considerable doubt on its use to accurately forecast the effect of a fourth national entrant. Given the absence of compelling evidence demonstrating the substantial exercise of inefficient market power, the evidence that more than three carriers likely raises concerns regarding financial viability without ongoing subsidization, and the evidence that additional entry is inefficient, one wonders how long the federal government and its agencies will continue the failed policy of attempting to “enhance competition” in wireless markets. What will be the final cost to Canadians of an economically vacuous commitment to the proposition that competition is measured by the number of competitors

Wireless Competition in Canada: An Assessment

If there’s one thing Canadians agree on, it’s that Canada’s wireless industry can and should be more competitive. The federal government is on side with the policy objective of having four carriers in every region and has responded with policies that provide commercial advantages to entrants. But, the rub is that there has not been a study that actually assesses the state of competition in wireless services in Canada, until now. Those in favour of policies that will promote and sustain entry point to Canada’s high average revenue per user and low wireless penetration rate (mobile connections per capita) as evidence that there is insufficient competition. The difficulty is that the facts are not consistent with this simplistic analysis. Measurements of wireless penetration are skewed toward countries that maintain the Calling Party Pays Protocol and favour pay-as-you-go plans, both of which encourage inflated user counts. Canada’s participation per capita on monthly plans and minutes of voice per capita are not outliers. Moreover, in terms of smartphone adoption and smartphone data usage, Canada is a global leader, contributing to high average revenue per user. Consistent with being world leaders in the rollout of high speed wireless networks, Canada lead its peer group in capital expenditures per subscriber in 2012: the competition of importance to Canadians is not just over price, but also over the quality of wireless networks. In any event, none of the measures typically used in international comparisons are relevant to assessing the competitiveness of Canadian wireless services. The appropriate competitive analysis recognizes two relevant features of the technology of wireless services: (i) high fixed and sunk capital costs; and (ii) economies of scale and scope. The implications of these are that profitability requires mark ups over short run measures of cost — high gross margins — and that there will be a natural, upper limit on the number of wireless carriers. The key issue in terms of competition is whether prices track long run average costs, namely, whether wireless providers make monopoly profits. An examination of the leading firm’s cash flow over the life cycle of the wireless industry suggests internal rates of return well below the likely ex ante, pre-tax, cost of capital that reflects the risk of its investments. This is not consistent with either the inefficient exercise of market power or monopoly profits. Moreover, international comparisons of structural indicators of competition indicate that, if anything, wireless services in Canada are more competitive than in many of its peers. There is no evidence that there is a competition problem in wireless services in Canada. Efforts to create competition in the short run, that increase the number of carriers, will simply squeeze margins in the short run and likely will not be sustained in the long run, as carriers exit and consolidate to reduce competition and restore margins consistent with profitability and the natural limit. And, while consumers might gain in the short run from lower prices, everyone is likely made worse off in the long run from the misallocation of spectrum, reduction in scale of carriers, and reduction in incentives to invest from such intervention. The AWS set asides allocated spectrum to carriers whose focus was on talk and text, not carriers whose focus is on data, resulting in an inefficient mix of networks and a suboptimal allocation of spectrum

Invariance properties of Miller-Morita-Mumford characteristic numbers of fibre bundles

Characteristic classes of fibre bundles $E^{d+n}\to B^n$ in the category of closed oriented manifolds give rise to characteristic numbers by integrating the classes over the base. Church, Farb and Thibault [CFT] raised the question of which generalised Miller-Morita-Mumford classes have the property that the associated characteristic number is independent of the fibering and depends only on the cobordism class of the total space $E$. Here we determine a complete answer to this question in both the oriented category and the stably almost complex category. An MMM class has this property if and only if it is a fibre integral of a vector bundle characteristic class that satisfies a certain approximate version of the additivity of the Chern character.Comment: 15 page

Transmission Policy in Alberta and Bill 50

We would like to express our appreciation to participants at the “Electricity Transmission Policies: Issues and Alternatives” workshop sponsored by the School of Public Policy for comments and suggestions and, in particular, Marcy Cochlan, Randy Stubbings, Joseph Doucet, Larry Ruff, Richard Tabors, Steven Stoft, Dan Levson, Bob Baer, Aidan Hollis, Carl Fuchshuber, Tom Cottrell, Cory Temple and Evan Bahry. The graciousness and spirit with which they provided comments does not of course imply endorsement of our approach or conclusions. In addition, we benefited from the comments of an anonymous referee.The views expressed in these publications are those of the authors' alone and should not be interpreted as the views of the School of Public Policy or of its supporters, staff or boards

Drawing Feynman Diagrams with LaTeX and Metafont

Feynmf is a LaTeX package for easy drawing of professional quality Feynman diagrams with Metafont (or Metapost). Feynmf lays out most diagrams satisfactorily from the structure of the graph without any need for manual intervention. Nevertheless all the power of Metafont (or Metapost) is available for the most complicated cases.Comment: 19 pages, standard LaTeX2e with recent graphics and amstex packages, 45 figures (EPS), preformatted PostScript (300dpi) in ftp://crunch.ikp.physik.th-darmstadt.de/pub/preprints/IKDA-95-20.ps.g

The use of turbulent jets to destratify the Charles River Basin

Thesis (S.M.)--Massachusetts Institute of Technology, Dept. of Civil and Environmental Engineering, 2012.Page 74 blank. Cataloged from PDF version of thesis.Includes bibliographical references (p. 72-73).This study examines the feasibility of using turbulent jets to destratify the Lower Charles River Basin between the Longfellow and Craigie Bridges between Boston and Cambridge. The basin is currently filled with salt water that intrudes from the downstream dam and the resulting vertical density gradients inhibit mixing, leading to low levels of dissolved oxygen at depth. A physical model was scaled to a portion of this basin and salt water was used to create initial density profiles. Turbulent jets were introduced near the bottom at varying flow rates, discharge angles, and nozzle diameters, and a conductivity probe was used to document changes in salinity versus elevation and time. The effectiveness of the turbulent mixing was determined by comparing the change in water column potential energy over time, while efficiency was determined by comparing the change in potential energy versus the cumulative input of kinetic energy. The most effective arrangement provided a scaled mixing time of about a week to mix the basin. Since this is significantly shorter than the (annual) period over which stratification takes place, it is concluded that the turbulent jets would be an effective method to destratify the basin.by Jeffrey H. Church.S.M

Unilingual versus Bilingual Education: a Political Economy Analysis

We consider an economy with two language groups, where only agents who share a language can produce together. Schooling enhances the productivity of students. Individuals attending a unilingual school end up speaking the language of instruction only, while bilingual schools render individuals bilingual at the same cost. The politically dominant group(not necessarily the majority) chooses the type(s) of schools accessible to each language group, and then individuals decide whether to attend school. We show that the dominant either choose laissez-faire or restrict access to schools in the language of the dominated. Instead, the dominated favour the use of their own language. Thus, while agents do not derive utility from speaking their mother tongue, language conflicts of the expected type endogenously arise. Democracy (majority rule) always leads to the implementation of a socially optimal education system, while restrictions to the use of the language of the dominated are implemented too often under minority rule. The model is consistent with evidence from Belgium, France, and Finland

Silk from Crickets: A New Twist on Spinning

Raspy crickets (Orthoptera: Gryllacrididae) are unique among the orthopterans in producing silk, which is used to build shelters. This work studied the material composition and the fabrication of cricket silk for the first time. We examined silk-webs produced in captivity, which comprised cylindrical fibers and flat films. Spectra obtained from micro-Raman experiments indicated that the silk is composed of protein, primarily in a beta-sheet conformation, and that fibers and films are almost identical in terms of amino acid composition and secondary structure. The primary sequences of four silk proteins were identified through a mass spectrometry/cDNA library approach. The most abundant silk protein was large in size (300 and 220 kDa variants), rich in alanine, glycine and serine, and contained repetitive sequence motifs; these are features which are shared with several known beta-sheet forming silk proteins. Convergent evolution at the molecular level contrasts with development by crickets of a novel mechanism for silk fabrication. After secretion of cricket silk proteins by the labial glands they are fabricated into mature silk by the labium-hypopharynx, which is modified to allow the controlled formation of either fibers or films. Protein folding into beta-sheet structure during silk fabrication is not driven by shear forces, as is reported for other silks