Channel Trading and Imperfect Competition: Good Trades and Bad Trades

Abstract

We investigate the potential economic effects of spectrum trading amongst firms who require spectrum licences as part of their activities. Trading takes place within the technical interference constraints enforced by a regulator. The model accommodates a variety of markets and firms, as well as both chan- nel exchange and channel re-use (i.e. sharing across different markets). Our most detailed analytical results have focused on trade amongst oligopolists in a given (geographical) market. In this context, our results suggest that trade can enhance productive efficiency by placing licences in the hands of firms who value them most (i.e. low-cost firms). These are the ‘good trades’. However, there is a danger that this process may cause higher consumer prices which, in turn, could offset the welfare effects of lower cost production, the ‘bad trades’. An important outcome of our modelling is to make clear a role played by licences: they provide credible commitment mechanisms to restrict output.radio spectrum, spectrum trading, imperfect competition