Lessons in Humble Pie

As a parent, college educator, husband, middle child, retiree, etc. I have had my share of humble pie.  It's calorie free and oh so dislodging. Like everyone, I deserve comeuppances and getting knocked down a few notches.

But (of course, a but was coming) . . . today marks a high or low point in my diet.

I just completed a draft of my first law review manuscript after having retired from Penn State.  I intend on continuing to make contributions to the academic literature and recently received the honorific title of Academy Professor, in recognition of my ongoing work.  This 15,000 word manuscript took six months to prepare, and some of the comprehensive footnotes required hours of research, writing, and editing.  

I am proud of the work.  Imagine my surprise when not more than 20 minutes transpired before I received my first rejection.

The law review submission process involves the use of a monopoly platform intermediary that handles the formatting and online delivery of manuscripts to editors of law reviews.  Unlike in other disciplines, law review authors submit the same work to multiple prospective publishers.  Younger, ambitious law professors strategize how to get an offer from the best possible publisher.  The intermediary platform operator, known as Scholastica, encourages the maximum number of submissions and offers to notify editors when authors seek expedited consideration, because they have an offer in hand and hope to secure one from a more prestigious journal.

This automated process saves time, but requires payment for each delivery.  I took great pains to draft a compelling abstract and the all important "pitch letter." How disappointing to receive a rejection in less time that it would have taken to read the abstract and pitch letter.  Adding insult to injury, and humble pie volume, the rejecting journal had previously published one of my articles.

Are law review editors relying on artificial intelligence to process and make a judgment about manuscripts?  Could the rejecting journal management, with or without computerized help, make a publication decision based on the title of the manuscript?  Maybe.

In any event, as I increasingly fade away, I at least can feel proud that I have a new lifetime achievement in humble pie.

Nipping in the Bud Any Reassessment of Merger Guidelines

             The Department of Justice and Federal Trade Commission have released for public comment proposed new guidelines designed to address "the many ways mergers can weaken competition, harming consumers, workers, and businesses." See https://www.ftc.gov/news-events/news/press-releases/2023/07/ftc-doj-seek-comment-draft-merger-guidelines. Rather than participate in a thorough debate on the merits of the new government guidelines, a variety of stakeholders have launched a preemptive strike to discredit the inquiry and individuals like FTC chairwoman Lina M. Khan. 

             Sponsored researchers, Chicago School antitrust doctrine advocates, and maybe some true believers in the virtues of maintaining the status quo have become apoplectic in their disapproval, some preemptively oppositional even before release of the proposal. See e.g., https://www.uschamber.com/finance/antitrust/a-shift-in-merger-enforcement-risks-damaging-our-economy; https://cei.org/studies/turning-back-the-clock-structural-presumptions-in-merger-analyses-and-revised-merger-guidelines/.

             Using a commonsense standard, I smell a rat.  Advocates for maintaining the status quo have much to lose if DOJ, FTC, and eventually, reviewing courts, respond to changing marketplace conditions such as the proliferation of "winner take all" platform intermediaries, like Facebook and Google.  Information Age markets do not always match the manner in which bricks and mortar markets operate.  See Rob Frieden, The Internet of Platforms and Two-Sided Markets: Implications for Competition and Consumers, 63 Vill. L. Rev. 269 (2018); https://digitalcommons.law.villanova.edu/vlr/vol63/iss2/3/; Two-Sided Internet Markets and the Need to Assess Both Upstream and Downstream Impacts, 68 Am. U. L. Rev. 713 (2019); https://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=2085&context=aulr. Nevertheless, stakeholders tenaciously adhere to doctrine, rules, laws, and assumptions that surely need reassessment in light of changed circumstances.

             Here are a few significant new challenges to the status quo.

1) Chicago School emphasis on consumer welfare and price ignores harmful secondary and tertiary impacts.

             It does not take a Ph. D in economics to see financial and reputational harms resulting from mergers and acquisitions that further concentrate markets. Even using monetary impact as the sole evaluative criterion, market dominance makes it possible for firms to extract monopoly rents.  Chicago School advocates note how firms like Facebook and Goggle and offer a valuable service "for free." Using their narrow focus, free represents a remarkable value proposition. However, a broader focus on economic impact readily identifies offsetting harms: identity theft, insufficient data protection resulting in stolen email addresses and passwords, disinformation leading to distrust in government, media, organized religion, and other bedrock institutions, threats to elections, national security, and individuals' overall sense of wellbeing, etc.

             Free does not mean without cost, particularly in an ecosystem where "surveillance capitalism" offers a "free" service as an inducement for the opportunity to mine, collate, market, and generate revenues from data.

2) Vertical and horizontal mergers are not necessarily separate transactions.

             Conventional antitrust theory, subsequently baked into case precedent and current DOJ-FTC merger guidelines, considers as gospel truth the mutual exclusivity of vertical and horizontal mergers.  The former qualifies for relaxed scrutiny based on the assumption that the acquiring firm did not compete in the markets served by the acquired firm.  The rationale concludes that no harm will beset consumers in a merger of firms that did not compete with each other in the first place.  Because horizontal mergers involve the elimination of a competitor and expanded market share for the acquiring firm, closer scrutiny should apply.

             There are several grave problems with this convenient and simplistic doctrinal model.  Many markets, especially information, communications, and entertainment ("ICE") ones, have dominant firms that operate throughout vertical and horizontal "food chains."  For example, Comcast creates content (NBC Universal), syndicates and licenses content for distribution by unaffiliated firms, and also delivers content to consumers (cable, broadcasting, streaming).  The company is vertically integrated and horizontally integrated.  It competes with companies that also have to pay it for access to "must see" content, e.g., NBC as a broadcast network still offering mass market programming such as network news and live sporting events.

             If courts did not assume vertical acquisitions lack any adverse impact on markets and consumers, a vertical acquisition might get the kind of close scrutiny it warrants.  Consider Comcast's acquisition of NBC.  The conventional wisdom framed the deal as vertical integration, because Comcast mostly distributes content as a cable television operator, with seemingly limited investment in content creation.  Even accepting the obvious that Comcast does create content, reviewing courts assumed the company would never withhold access, because it would reduce licensing and syndication revenues.

             News flash: Comcast might want to withhold content, or extract higher payments from competitors.  So-called retransmission consent requires Comcast, as the owner of NBC to negotiate in good faith with unaffiliated cable television companies.  Frequently, the parties cannot reach a renewal agreement on time and valuable content is blocked.  These "black outs" have become more numerous and last longer.  See, Rob Frieden, Krishna Jayakar, & Eun-A Park, There’s Probably a Blackout in Your Television Future: Tracking New Carriage Negotiation Strategies Between Video Content Programmers and Distributors, 43 Colum. J.L. & Arts 487 (2020);  https://academiccommons.columbia.edu/doi/10.7916/d8-aq85-2z51/download.

3) Mergers rarely enhance competition.

             Has anyone empirically proven that a merger or acquisition enhances consumer welfare rather than just the acquiring company's profitability?  Does reducing the number of competitors somehow make the survivors more vigorous competitors, keen on innovating, reducing prices, improving customer service, and otherwise making the marketplace more robust?

             Consider TMobile's acquisition of Sprint.  The conventional wisdom, dutifully articulated in the court's approval of the transaction (see https://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2019cv05434/517350/409/) assumed New TMobile would continue the tradition of being an innovator, lower cost competitor, and provocative pro-consumer warrior.  I see the wireless marketplace as an oligopoly of three offering roughly the same prices, happy to differentiate themselves on what "free" content like Netflix they will provide subscribers. Has New TMobile offered anything innovative and disruptive since acquiring Sprint?

             I readily acknowledge that Sprint had become a failing venture, perhaps on the brink of bankruptcy.  If an incumbent had not acquired the firm, I believe a new investor gladly would have paid pennies on the dollar for the opportunity to operate in a market with one of the highest average revenue per user in the world.  Yes, wireless rates have declined, but they are lower with better terms throughout most of the world.

4) Platform intermediaries, operating in two-sided markets, can adversely impact horizontal, vertical, secondary, and tertiary markets.

             Chicago School antirust doctrine provides simplistic, but easily understood and implemented rules. Judges and their law clerks, have become indoctrinated in "rules" that started as theory, but over time got baked into the jurisprudence.  I believe the Chicago School doctrine became unimpeachable gospel largely because stakeholders that would benefit from relaxed antitrust enforcement, invested heavily in making it a fundamental part of law and economics.

             How did this happen?  Millions of dollars spent over decades have made the doctrine appear legitimate and unimpeachable, despite regularly failing a simple smell test.  The combination of sponsored researchers, well-funded institutes, foundations, think tanks, and advocacy groups, all-expense paid seminars, endowed professorships, and the like have paid off.  Sponsored researchers create a plethora of work, framed as academic contributions, but designed to achieve support for a predetermined outcome. The process continues and builds on itself as sponsored researchers cite the prior work of sponsored researchers.  Over time, clearly results driven advocacy documents acquire the legitimacy and credibility of unsponsored work aiming to seek the truth.  In fact, sponsored research can crowd out work that does not have the public outreach and cheerleading provided by stakeholders.

             The whole process "stinks to high heaven."  Just now, sponsored researchers are noting that the proposed merger guidelines would harm the credibility of both DoJ and FTC, apparently before the court of public opinion and judges.  Of course, these very same pundits have the financial incentive to impeach the credibility of these government agencies and deem the proposed guidelines harmful, ill conceived, and bullying.

             It's a racket as my wife would say.  I am certain that so-called consumer stakeholders also have financial underwriters singing the praises of the proposed guidelines. However, these groups have substantially less funding available, because few stakeholders can see the direct monetary harm that would result from implementation of the guidelines.

             I understand that sponsored researchers often have the ongoing financial burden of having to generate annually enough "soft money" to keep graduate students employed. Sadly, that necessity has become yet another reason for the rats to proliferate.  

 

Blog Catharsis

     Even recognizing that few people will ever come across my blog, some degree of catharsis and validation accrues.  I am glad to get something "off my chest," no matter how ineffectual.

    Toward that end, I have decided to share some of the minor and sometimes major irritants that result from living in a digital, mediated, ecosystem.  Here's a starting list of digital artifacts that drive me crazy:

1)    Comcast's customer service bot includes background typing sounds ostensibly to make subscribers assume the bot is thinking and working hard at customer care.

2)    Verizon's PagePlus reseller, uses low paid, off shore customer service reps who do nothing more than read from scripts.  They have no ability to solve most problems and lie to subscribers that someone more qualified will call back within the hour.  PagePlus also lies in emails to subscribers about how a rep  tried to call, but no one answered.  I have an answering machine and only once got a recorded message from Pageplus.

3)    Mastercard refused a credit card application based on my lack of "credit experience."  Apparently, I have not been in debt enough times.

4)    On line orders for a new magazine subscription may take 4-6 weeks for "processing."

5)    Toll free calls to various customer service reps often get cut off.  Lately an algorithm predicts the likely holding time. Is 90 minutes too long?

To be continued.

Vanguard Saves Millions By Requiring Most Clients to Print Out Statements

 The money crunchers at Vanguard Investments recently changed their rules to make their mailing of hard copy documents an expensive option.  Previously, one could avoid a $25 fee for each account (I have four) by investing over $1 million, until VG raised the figure to $5 million.

This change in customer care has nothing to do about the environment. VG really, really wants to avoid the substantial cost in printing and mailing documents.  Just unbundle that task from the concept of service and, tah dah, VG saves millions.  In doing so, they also tick off just about every one of their customers. 

VG obviously has no clue about the expense and hassle in home-based document printing.  As a retiree, I have no convenient way to print lengthy documents at the expense of an employer.  My HP inkjet printer guzzles ink, and HP makes every effort--including likely illegal ones--to prevent the use of reused cartridges.

Contrast VG's sneaky and ham-handed environmentalism, with what Fidelity and T. Rowe Price do. They gladly send statements pre-punched for easy insertion into a loose leaf binder.  

This process may seem old school, but maybe Fidelity and T. Rowe Price know something about investor behavior that VG wants to ignore: investors like hard copies of their statements and they also like to compare performance by referencing different monthly statements.

Try toggling monthly statements on line and you might see the benefit in having hard copies.  

Vanguard has increased my printing duties substantially.  Would it be over reacting to take my business elsewhere?

The Making of a Digital Curmudgeon

             OK, I recognize that I have never been this old and the elderly—bless their hearts—tend to stick with the reliable and proven. They (we) typically appreciate frugality, but willingly pay a premium when the value proposition seems fair. On the other hand, we realy, really resent getting nickled and dimed by bogus new billing line items.

             With that benchmark, I retain my wireline (Verizon) phone service, have a prepaid (Pageplus/Verizon) monthly wireless subscription, and have a grandfathered, slow, broadband (Comcast) monthly plan.  My wife and I used older smartphones, typically with the data capability off.  We both use tablets and personal computers at home.

             We make do just fine, except for traveling instances where a data plan would come in handy, e.g., to find an alternative route when unexpected construction blocks onramp access to an interstate.

             Increasingly, this strategy has become unsustainable, for reasons that, to me, do not come across as compelling.  Here are some examples:

             Several restaurants conserve waitstaff time and numbers, by requiring guests to scan a QR code for the menu and online ordering. No one is available to answer questions about the meals and beverages offered.  This strikes me as significantly reducing the value proposition in dining out.  Why bother when the restaurant unbundles elements of the dining experience?  Adding insult to injury, payment by phone or terminal defaults to a 22% tip which takes time and maneuvering across multiple screens to change or eliminate.

             Grocery stores have started offering discounts that one must "load onto your app" in lieu of bar code activation.  While I am ok with the compilation of a dossier building from analysis of all bar code scanned purchases, the app install strikes me as a trojan horse.  What kind of surveillance does the app generate, especially across multiple sites and commercial transactions having nothing to do with the grocery store?

             Comcast and Amazon, among other major ecommerce vendors, go out of their way to make it unduly complicated and time consuming to terminate or modify service.  The FTC recently sued Amazon for erecting an epic "Iliad" lengthy hassle to terminate a Prime subscription. See: https://www.ftc.gov/system/files/ftc_gov/pdf/amazon-rosca-public-redacted-complaint-to_be_filed.pdf; https://www.ftc.gov/news-events/news/press-releases/2023/06/ftc-takes-action-against-amazon-enrolling-consumers-amazon-prime-without-consent-sabotaging-their.

             Finding news ways to reduce customer care has become the prime mission of way too many ventures.  They route calls to unqualified, offshore staff equipped with nothing but mindless scripts to recite.  Now, some have eliminated any option of interacting with a live person. See https://www.cnbc.com/2022/11/25/frontier-airlines-gets-rid-of-telephone-customer-service.html.

             Vanguard Investments, which already accrues ample management fees from me, recently raised from $1 million to $5 million the amount required to secure a waiver of a $25 account servicing fee.  To avoid paying, clients must agree to receive all documents via email, including monthly statements.  How many of us maintain a file of hard copy statements for banking and other financial service transactions?  If not, are you content to have online access to prior statements?

             I guess Digital Natives and other non-curmudgeons have no affinity to paper.  I like reading the newspapers, magazine, and books on paper.  I consider it essential to maintain monthly hard copy statements of credit cards, etc. for budgeting and tax planning.

             Call me old, but also prudent.

 

 

 

 

Market Forces Preempted by Rising Risk and Regulation?

             This might not be the best time for the U.S. Chamber of Commerce to make the case that rising risk and regulation are harming the marketplace and consumers.  See Public Policy Risks Soar Amid Growing Trend to Regulate Rather than Legislate and Partisan Approach to Lawmaking.  A content analysis of companies' 10-K filings with the Securities and Exchange Commission quantifies a rise in risk disclosures, with increases in key works such as data privacy, immigration issues, labor, and intellectual property.

             The Chamber appears intent on persuading the court of public opinion that life is getting riskier and harder for business. 

             It appears to me that Business America has largely foisted risk onto consumers, and counterintuitively their profit margins have increased despite frequent complaints that regulation raises the cost of doing business, squelches innovation, and reduces employment.

             I cannot find an airfare or hotel booking that permits cancellation without a risk premium doubling the non-refundable rate.  Similarly, if risk is so harmful, how can businesses, in a variety of market segments, find it possible to increase revenues and profit margins?  Even the Wall Street Journal notes this anomaly.  See Why Is Inflation So Sticky? It Could Be Corporate Profits

             I was indoctrinated by my UPenn and UVa training that market forces are largely unimpeachable.  In most cases yes, but just now, even some people at the "Diary of the American Dream" (a former marketing slogan for the Journal) see companies able to game the system.  Apparently, we consumers can become numbed by the constant drumbeat that inflation is unavoidable when markets become disrupted by supply chain and other extraordinary circumstances. The Chamber of Commerce wants to include in the emergency rationale upward price pressure created by added risk and government regulation.

             No one in the Chicago School seems able and willing to concede that sometimes market self-discipline fails.  How can these true believers explain the success achieved in keeping prices and margins extraordinarily high by blaming risk and the government even when the underlying emergency triggers have ended?  Now there are too many truck drivers at west coast ports chasing after declining loads.  No bottleneck in the supply chain anymore.

             Sticky, slimy, unclean, but surely not invisible hands at play.

The Highly Questionable Assertion that Regulation Stifles Innovation

             Big Pharma and Big Telecom endless repeat as gospel truth the highly questionable assertion that government oversight stifles innovation.  Facing the prospect for Medicare administrators, newly authorized to negotiate or even set caps on the prices of a very few drugs, Big Pharma has launched an outreach offensive stating as a given that such action will "stifle innovation" and "harm consumers." See, e.g., Tomas J. Philipson, The Deadly Side Effects of Drug Price Controls, The latest Medicare guidance will stifle pharmaceutical innovation—and it’s worse than we thought, WALL STREET JOURNAL (April 5, 2023); available at: https://www.wsj.com/articles/medicare-drug-price-controls-will-make-america-sicker-research-innovation-negotiations-private-insurers-b503b4ba.

             Big Pharma's big fib reminds me that Big Telecom uses the same gambit.  In the case of telecommunications, incumbent carriers swore that mandatory network access neutrality would stifle innovation and reduce capital expenditures in new technology.  Some of their favorite legislators, now obsessed with mandating "fair treatment" by social media, conveniently forget about their virulent opposition to nondiscriminatory broadband network access.

             Does innovation disincentivization pass a reasonable person's "smell test."  Successful incumbent ventures will scrimp on developing and bringing to market new products and services, because the Big Bad Government acts in ways that might constrain upside profitability?  Incumbents simply will conserve capital and scrimp on research and development, apparently content to squeeze out profits from prior investment in now aging innovations?

             Does this strategy make any sort of business sense, particularly for industries that reward innovation with government-conferred monopolies in the form of patent protection and limits to competition?

             I concede that a tougher environment for price gauging does create new incentives, such as redoubled efforts to extend the patent monopoly of a soon expiring drug by reformulating it to provide extended release, or to coat it with something to reduce the risk of stomach distress.  Similarly, I can see how the potential, for harm to innovation, exploits anxiety about any adverse impact on global market share in industries with national security risks, such as telecom, broadband, and computer chips.

             On the other hand, does can anyone seriously claim that commercial ventures will deliberately handicap their future marketplace competitiveness and ability to introduce faster, better, smarter, and possibly more expensive new drugs and telecommunications services? If you believe that, then explain to me why wireless carriers plan the deployment of next generation networks, year end and year out, without regard to which political party has more FCC Commissioners and whether network neutrality obligations apply.

             Is 5G wireless the last innovation we can expect from Verizon, AT&T, TMobile, and Dish?

Premiumization: A New Word and Another Sneaky Way to Increase Profit Margins

             The Sat. March 4, 2023 edition of the New York Times introduces a new word describing another way companies can offer consumers a "gentrified," higher priced product or service that accrues a higher profit margin. See https://www.nytimes.com/2023/03/04/business/economy/premium-prices-inflation.html.

             While informative, the article missed a major point: the touted higher value proposition often results not from offering something truly better, and more expensive to provide.  Instead, the company finds a way to reduce its costs, by substituting a cheaper, inferior ingredient such as high fructose corn syrup.  Consumers can buy a "premium" version of the product with the restored, originally used cane sugar, albeit at a higher cost, far above the miniscule cost difference between the old ingredient and its cheaper replacement.

             How clever: ketchup, bread, and other common products now have two versions: 1) the inferior, high fructose option for price sensitive consumers; and 2) a more costly, "enhanced" product that simply continues to contain cane sugar that originally was offered to everyone.

             I am sure well trusted companies, such as Heinz, will claim, Covid-19, supply chain disruption, labor shortages, cane sugar shortages, inflation, higher operating costs, etc. necessitate its deliberate reduction in the value proposition of a long-treasured product.  Maybe they can get away with this brazen, sneaky strategy, particularly for products that consumers perceive as not substitutable ("Accept no substitutes.")

             I used to be brand loyal to Heinz ketchup, but have migrated to an organic option from another company that uses can sugar and manages to offer this enhanced product for significantly less than Heinz. My tastebuds are happy and I am pleased to "vote with my dollars."

             In the words of Nancy Reagan: "Just say no" to yet another ploy to goose profit margins.

 

           

 

           

Weaponization of Inner Space Column in the Cleveland Plain Dealer

You might have an interest in my "explainer" about the Chinese surveillance balloon and the likely dangerous repercussions:  https://www.cleveland.com/opinion/2023/02/china-balloon-surveillance-marks-new-worrisome-expansion-of-areas-where-provocation-could-spark-armed-conflict-rob-frieden.html

Lessons from Pretzel Skimpflation

Long time readers of this blog may recall occasional pieces on consumer issues sometimes far afield from telecom. I see parallels, but perhaps they are not perfectly on point.  This piece might fit that bill as I draw parallels between adulteration of pretzels and the state of customer service in telecom and other industries.

Pretzels are one of my relatively few food indulgencies.  Bakers tout the non-fat nature of this product, but in reality pretzels are largely processed and not terribly healthy white flour, salt, soda, and yeast.  Lately, bakers have added a most unwelcomed ingredient: "vegetable fiber," otherwise known as cellulose, or more unappetizing wood pulp and sawdust.

Adding wood pulp helps bakers scrimp on costly wheat while maintaining the same package weight. In these inflationary times, clever pretzel makers engage in shrinkflation by reducing packages from 16 to 14.25 ounces.  They get another bite by replacing a portion of the wheat ingrient with a less costly filler.  They hit the trifecta by fooling consumers at the same time as the package price rises from an average $2.50 to over $4.00.

I have launched a personal boycott of any pretzel conmpany that sneaks in vegetable fiber.  You can taste the difference, which is not the case when high fructose corn syrup replaces cane sugar.

Maybe, just maybe, if enough consumers eschewed vegetable fiber adulterated pretzels, the bakers might relent.  Maybe not.

Will Frontier Airlines suffer in the marketplace, because they have eliminated even the option of talking to a live person for any reason?  Does Tracfone/Pageplus Cellular/Verizon suffer when they lie to the FCC and consumers about their efforts to call back to resolve a dispute with a subscriber?

Does any venture face adverse consequences when scrimping on customer care?  Has a Bot ever been able to understand your grievance, much less solve it?

We need more vocal and deliberate consumer pushback when ventures replace longstanding ingredients with cheaper and inferior substitutes. 

 

New Publication on Space Junk and Anti-Satellite Warfare

Senior Russian government officials have threated to destroy U.S. satellites.  See https://www.livemint.com/news/world/russia-threats-to-hit-us-satellites-if-it-continues-to-11666885278398.html; https://arstechnica.com/science/2022/10/russia-threatens-a-retaliatory-strike-against-us-commercial-satellites/;https://www.reuters.com/world/russia-says-wests-commercial-satellites-could-be-targets-2022-10-27/.

Also, this week, the International Space Station, yet again, has needed to change orbit to avoid a possible collision with Russian space debris. See https://blogs.nasa.gov/spacestation/2022/10/24/space-station-maneuvers-to-avoid-orbital-debris/; https://www.cnn.com/2022/10/25/world/iss-maneuver-russia-space-junk-scn; https://www.npr.org/2022/10/26/1131374307/international-space-station-junk-debris-problem-satellite.

I am pleased to announce publication of a paper that explains how anti-satellite warfare and space junk make it more difficult for nations to agree on rules for sharing space and radio spectrum resources: 

See https://www.sciencedirect.com/journal/telecommunications-policy/vol/46/issue/10.

Here’s the abstract:

This paper explains why the coordination of satellite orbits and spectrum use among nations have become more contentious and less routine.  The potential for greater risks, delays, and conflicts occurs, despite treaty-level commitments to promote the peaceful uses of outer space and efficient and equitable access to radio spectrum and satellite orbits. Heretofore, specialized sectors of the United Nations (“UN”) have worked effectively in forging multilateral consensus on these matters.

The paper explains why the coordination of satellite orbits and spectrum use among nations may become more contentious and protracted. The potential for greater risks, delays, and conflicts may occur, despite treaty-level commitments by most nations to promote the peaceful uses of outer space and access to radio spectrum and satellite orbits free of signal interference and collision risk. Heretofore, specialized sectors of the United Nations (“UN”) have worked effectively in forging multilateral consensus on these matters.

Since the onset of artificial satellite technology, the UN has created five space-related treaties covering such issues such as freedom of exploration, liability for damage caused by space objects, the prevention of harmful interference with space activities and the environment, the notification and registration of space activities, exploitation of natural resources in outer space and the settlement of disputes. The International Telecommunication Union (“ITU”), a specialized agency of the UN, has largely achieved the goal of preventing harmful signal interference, formulating technical standards promoting equipment compatibility, and establishing uniform operational rules of the road.  Until now, month long ITU spectrum planning conferences have reached closure on both mundane and critical matters, albeit at a slow and methodical pace. 

The paper explains how several chronic and emerging factors present challenges to the successful record of multilateral consensus building on space and spectrum issues.  The likelihood of collisions of spacecraft with other objects, including space debris and harmful signal interference has increased, because then United States has opted to make domestic satellite rules and frequency allocations in advance of final ITU consideration.  Additionally, China and Russia have sought an expansion of the ITU’s mission to include elements of Internet governance that could promote balkanization of Internet access and legitimize efforts by individual nations to surveil and control access to broadband networks.

The paper assesses whether and how UN agencies can continue to establish timely and effective policies and procedures for reducing space debris and the potential for spacecraft collisions, and preventing harmful signal interference.  The paper concludes that China, Russia, and the U.S., should renew efforts to promote collegiality, consensus building, and longstanding, shared goals.

 

 

 

 

 

 

 

 

 

 

 

What Do Juries, Prunes, and Antitrust Policy Have in Common?

Long ago, while a student at University of Virginia School of Law, my Criminal Procedure professor likened optimal jury size with the correct number of prunes to achieve proper effect.  Consistent with the Goldilocks story, juries should not be too large, or too small.

OK, I got that, but advocates for megamergers use the same logic.  They conjure the number at three.  A market—apparently, any market—only needs three competitors to remain robustly competitive.  If there are three, any incumbent should be free to acquire market share and extinguish the seemingly unnecessary competition generated by more than three ventures.

This does not pass my smell test, as corroborated by the U.S. mobile telecommunications and commercial aviation markets.  I cannot understand how market consolidation to three magically stimulates competitive juices making the market “more competitive” than when four or more ventures operated.

From my empirical perspective, I see the cellular carriers bundling video content and never fully disclosed handset subsidies, but never really going head-to-head on net, out of pocket costs.  There are plenty of obscure fees, sponsored advocates attempt to frame as taxes, scrimping on customer service, and lots of commercials that tout anything but lower costs.

Help me out, here: does TMobile offer, net out of pocket rates, significantly below what consumers can get for AT&T and Verizon?  Can consumers opt out of “free” video streaming and secure a lower price?  How much lower are rates, if you already have a smartphone?

Do the Big Three airlines aggressively compete on price, after you factor in all the now ala carte “amenities” that used to constitute part of the base fare? I see a preoccupation with Business Class seat enhancements and creation of a new Premium Economy option, because the margins are spectacular.

A now rarely used term, “conscious parallelism,” describes market behavior where so-called competitors do not seem to compete.  Remarkably the three major airlines offer an identical fare from A to B.  But what about the Low-Cost Carriers, who also want to merge and become better competitors?  Are they truly “functional equivalents” when they only offer a few flights from A to B and engage in “bait and switch” with teaser fares that come close to the legacy carrier rates after including all the ala carte amenities, such as the privilege of bringing a carryon bag aboard?

For a short time, my home airport had a fourth carrier available.  It offered one flight a week to a remote airport in Florida.  While the airport managers self-congratulated themselves, consumers faced a carrier offering no option when, predictably bad weather, flight irregularities, and “Air Traffic Control” issues scrubbed the flight.  Do these passengers have any options other than to cancel their vacations, often with non-refundable booking, or hope for “reaccommodation” (an airline non-word) a week later?  This option, akin to a weekly “charter flight” does not constitute a functional equivalent to the options available from legacy carriers.

Oh, but what a robustly competitive market we have in State College, PA!

Pre-FCC Self-regulation

 Estate auctions have become one of the unexpected joys about living in rural Pennsylvania.  Never much of a collector, in my nearly thirty years at Penn State, I have acquired lots of old technology, including radios, telephones, and early personal computers.

Yesterday, I acquired correspondence on letterhead for a an organization aiming to promote and "regulate" the emerging radio technology in Clearfield County, Pennsylvania. I am not sure just what the members sought to achieve and how they did it, because there was a Federal Radio Commission preceding formation of the FCC in 1934.

Adventures in OTAR (Over the Air Television Reception)

 Recently, I upgraded the outdoor antenna I use to receive broadcast television signals.

Having fringe reception runs the risk of signal disruption at any time, but the financial rewards are significant. Comcast's basic cable tier, starts at $30 a month, plus a mandatory set top box.  On top of this extortionate rate, the company adds fees and taxes raising the annual cost to more than $500.

Impressive.

It appears that cable companies have confronted the reality of customer churn and opted to squeeze every last cent out of  subscribers disinclined to economize, install their own antennas, and opt for streaming of both live, linear channels and video on demand content.

There's a high price to pay for loyalty.

Prospects for Widespread Access to Electric Vehicle Charging Stations: Insights From Telecommunications Technology Diffusion

            An energy reporter, for a major daily business publication, contacted me to understand how electric vehicle charging stations might become more readily available, particularly in rural locales. She wondered whether the fast take up of new telecommunications technologies, such as cellphones, cable television, and broadband, might offer insights on what works to jump start market penetration.

             Bear with me as this apparently geeky subject offers insights on when electric vehicles might reach critical mass, in time to achieve a significant reduction in greenhouse gasses.

             The reporter intrigued me with a curious question whether the fast proliferation of gas stations might provide a model for similar geographical market penetration by electric vehicle charging stations.  My small collection of vintage gas station published road maps confirms she may be onto something.           

 

             This late 1950s map of Iowa identifies locations where motorists can fill up with Skelly gasoline:

             Marketing 101 suggests that a companies can bolster brand loyalty by offering a product far and wide.  The map identified locations where motorists could find a Skelly station on the recently constructed Interstate 80.

             Access to EV charging follows a similar chicken/egg challenge: car buyers will become more inclined to buy an EV if they have confidence that access to charging stations will not create FUD: fear, uncertainty, and doubt.

             Several parallels in telecom provide insights on what business models work. 

 Cellular Radio

             Some of you might remember the bad old days when a lack of vigilance when “roaming” might result in a hefty and unexpected charge.  Before nationwide roaming, with “anytime, anywhere minutes,” the U.S. had many standalone, “independent” operators, primarily serving ex urban and rural locations.  These carriers made a killing by providing access to their networks by motorists speeding along a major Interstate highway.  Few noticed the icon on their handsets (or bag phones) showing that a call was being handled by another carrier.

             The major operators, such as Bell Atlantic, Pacific Telesis, Bell South, and Southwestern Bell eventually executed roaming agreements with the small, independent operators, thereby reducing or eliminating “non-network” roaming charges.  The end to unexpected, extortionate roaming charges helped expand subscribership and the eventual mergers and acquisitions that now leave us with only three national carriers.

 Cable Television

             Unlike cellular radio, cable television debuted in lots of rural areas at the same time, or even before urban service.  First generation cable was labeled Community Antenna Television, typically offered by local, “Mom and Pop” television sales and service ventures.  These entrepreneurs offered cable television, primarily to stimulate interest and demand for television sets.

             CATV market penetration occurred on small, town-by-town basis without coordination, or accrual of scale economies.  Rural residence, starved for any broadcast television reception, gladly paid for access to a few broadcast channels.  Their urban counterparts had free, off-air reception options.  Only after cable operators embraced satellite technology to deliver distant signals and new cable only content did national penetration and subscribership speed up.

 Broadband

             High speed Internet access provides a case study in a most desirable, but costly technology largely unavailable in rural locales unless and until, private and public actors subsidize access.  This technology has high startup costs that operators must bear before the first dollar arrives.  On the other hand, adding an additional subscriber typically has much lower, so-called incremental costs, especially for high density locales.

             A private venture might vertically integrate into the electric charging market to remove FUD, generate brand loyalty, and stimulate vehicles sales.  It might also install facilities using proprietary standards resulting in incompatibility with EVs manufactured by competitors. 

             A government agency might want to stimulate demand, but typically the legislature must enact laws creating tax incentives and financial subsidies.  Unless and until incentives are anticipated and/or funded a “Digital Divide” has resulted.  The Covid-19 pandemic underscores the consequences when broadband access is unavailable or deemed too costly.

             For broadband and EV charging, state and federal governments may have to create generous financial incentives to achieve anything close to ubiquitous access.  Early adopters might not need as much external funding, because they can anticipate market opportunities, such as when a national hotel chain prioritizes the installation of charging stations.

             In any event, the past technology adoption models may offer insights on this new challenge.

The We’re Doing You a Favor Marketplace

             Countless vendors incessantly remind us how they must operate in “competitive marketplace,” with extraordinary challenges to price and availability of service.   Right now, they act like their doing us a big favor even by delivering a more expensive product, offering a substantially reduced value proposition.

            Have you noticed how many products have lower weights with decimal points?  Folgers now offers a coffee can with a massive 10.3 ounces.  P&G reduced the Crest tube from 6 ounces to 5.7 ounces.  My pet peeve: pretzel vendors reduced the standard pound bag to 14.25 ounces, and now have a vegetable fiber ingredient.  That’s code for sawdust, the use of which reduces the flour they have to include in their “artisan” product.

            How much money does a producer save when substituting high fructose corn syrup for sugar?  How much consumer rage does National Car ignore when the company does not honor a reservation, never responds to a complaint, doubles the daily rental rate, and offers no assurance that it will not ever again leave a frequent renter high and dry?

             At some point, one would think that the infallible marketplace would work through shortages and logistical headaches.  Apparently not this time.  Somehow chip fabricators just cannot get around to meeting increased demand.  U.S. port facilities never seem able to work through a backload, even with the extraordinary sacrifice of agreeing to work on weekends.

             I saw a poster in State College offering $48 an hour for carpenters.  I never earned that much as a university professor. 

             Oh that ruthlessly efficient marketplace.

5G Bandwidth Expansion Triggers an Avoidable Aviation Safety Alarm

 Warring U.S. government agencies continue to debate whether expanded fifth generation wireless service will interfere with aviation altitude measurements, years after the parties should have resolved this mission critical issue. See, e.g., FAA Statements on 5G (Jan. 28, 2022); https://www.faa.gov/newsroom/faa-statements-5g; Carr Statement on Biden Administration’s Failure of Leadership on 5G (Jan. 18, 2022); https://www.fcc.gov/document/carr-statement-biden-5g-delay.

In preparation for a 2019 global spectrum planning conference convened by the International Telecommunication Union, a specialized agency of the United Nations, the Federal Communications Commission, and even the President’s Executive Branch telecommunications advisory agency, summarily dismissed 5G altimeter interference concerns raised by the Federal Aviation Administration.  See Letter from Steve Dickson, Administrator, Federal Aviation Administration, to Adam Candeub, Deputy Assistant Secretary of Commerce for Communications and Information, Performing the Delegated Duties of the Assistant Secretary of Commerce for Communications and Information National Telecommunications and Information Policy, (Dec. 1, 2020); https://www.faa.gov/sites/faa.gov/files/2021-10/DOT_Letter_to_NTIA_FCC3.7_GHz_Band_Auction.pdf; John Hendel, How Washington flew into a 5G mess, POLITICO (Jan. 19, 2022); https://www.politico.com/news/2022/01/19/5g-flights-spectrum-mess-washington-527425.

Critical interference analysis should have continued, but it appears that the rejecting agencies expected the FAA to accept defeat and consider the matter closed.  Predictably, the FAA did not “speak now and forever hold your peace.”  It now has powerfully alarmed the court of public opinion with worst case scenarios of severe interference between 5G service and airline altimeter readings. See, e.g., Tom Wheeler, Did the FAA cry wolf on 5G?, TECHTANK, The Brookings Inst. (Jan. 21, 2022); https://www.brookings.edu/blog/techtank/2022/01/21/did-the-faa-cry-wolf-on-5g/; Stephen Gandel, How 5G Clashed With an Aviation Device Invented in the 1920s, THE NEW YORK TIMES (Jan. 19, 2022); https://www.nytimes.com/2022/01/19/business/5g-radio-altimeters-airlines.html; Andrew Ross Sorkin, Jason Karaian, Sarah Kessler, Stephen Gandel, Michael J. de la Merced, Lauren Hirsch and Ephrat Livni, Why Airlines Are Worried About 5G, THE NEW YORK TIMES (Jan. 20, 2022).

A serious matter, which could have been resolved through fair-minded technical assessment of interference potential and accommodation of cross cutting interests, now triggers FAA claims of calamity.   In the interim, the FCC auctioned off the newly reallocated 5G spectrum generating over $81 billion dollars for the U.S. treasury, (FCC Announces Winning Bidders in C-band Auction, (Feb. 24, 2021); https://www.fcc.gov/document/fcc-announces-winning-bidders-c-band-auction) with as much as $14.7 billion flowing to incumbent users of the C-Band satellite spectrum to defray their relocation costs.  See, FCC, Expanding Flexible Use of the 3.7 to 4.2 GHz Band, GN Docket No. 18-122, Report and Order and Order of Proposed Modification,  35 FCC Rcd. 2343 (2020); Caleb Henry, FCC sets December C-band auction, offers up to $14.7 billion for satellite operators, SPACE NEWS (Feb. 6, 2020); 

How Could This Happen?

For decades, the nations of the world have relied on an intergovernmental process designed to build trust and harmonize the use of radio spectrum and the orbits used by satellites. The ITU, has earned a reputation for lending its “good offices” to reach a global consensus, albeit one that can take years to complete.  Interference-free frequency allocations and uniform procedure for registering the orbital location of satellites enhance consumer welfare by promoting efficiency, shared access to global resources, and economies of scale. For example, a consensus on which frequencies to use for wireless services has made it possible for equipment manufacturers to offer single handsets useable in most places. https://spacenews.com/fcc-sets-december-c-band-auction-offers-up-to-14-7-billion-for-satellite-operators/.

The ITU achieves consensus by adhering to a lengthy process requiring thorough study, ventilation of viewpoints, and trust building with an eye toward anticipating, avoiding, and resolving conflicts.  Because the process often reaches “consensus by exhaustion,” some national governments and commercial stakeholders have become increasingly dissatisfied with the pace and outcomes of conference deliberations.  The prospect for early market entry, global wireless leadership, and billions of dollars in auction proceeds encouraged the FCC and the Executive Branch to fast forward 5G frequency allocations with little concern about potential harm to the ITU planning process and inadequate assessment of altimeter interference potential, even after financing the departure of incumbent users.

Government Agency Squabbling

Compounding problems with the ITU process, the United States government failed to resolve all interagency disputes before the 2019 ITU World Radio Conference.  The parties had plenty of time to work through their disputes and reach a consensus on spectrum planning initiatives at the ITU.  Instead, the FAA persists, perhaps combining a heartfelt concern for aviation safety with the desire to remedy the sting of not having had its concerns adequately considered by other government agencies having more apparent expertise, clout, and the ability to generate billions for the national treasury.

Reaching closure on a single set of initiatives for ITU spectrum planning conferences will become more difficult for many nations as the nature and type of interested parties grows.  Representatives of ventures using new spectrum-intensive technologies, such as autonomous vehicles, finance, artificial intelligence, and the Internet of Things, will need more bandwidth.  While most applications require short distance transmissions and can tolerate multiple uses of the same frequencies, the massive increase in demand can result in congestion and in turn demands for exclusive assignments to foreclose even the possibility of interference. 

FCC did anticipate the need to separate commercial 5G services from nearby incumbent altitude monitoring by aircraft.  Despite an FCC-mandated guard band of 220 Megahertz, [1] separating the two types of services the FAA vigorously asserted that the potential for harmful interference would persist, particularly during critical aircraft takeoffs and landings at airports (see Robert D. Atkinson, C-Band Spectrum Rollout for 5G and Aviation Altimeters, ITIF INNOVATION FILES (Nov. 9, 2021); https://itif.org/publications/2021/11/09/c-band-spectrum-rollout-5g-and-aviation-altimeters.

The FCC and FAA should recognize that they have limited time available to avert greater harm to the national interest in both access to the latest innovations in wireless broadband and aviation safety. Had the FCC worked with the FAA to assess the actual potential for interference, despite ample separation of frequencies used, wireless consumers would already have access to a sizeable block of spectrum ideal for ultrawideband service.

 

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[1]              “By licensing only up to 3.98 GHz as flexible-use spectrum, we are providing a 220-megahertz guard band between new services in the lower C-band and radio altimeters and Wireless Avionics Intra-Communications services operating in the 4.2-4.4 GHz band. This is double the minimum guard band requirement discussed in initial comments by Boeing and ASRC.” Expanding Flexible Use of the 3.7 to 4.2 GHz Band, Report and Order, at Para. 391.

A RUSSIA Acronym: Ruthlessly Undermining Small Satellite International Access

            In a universally contemned, knucklehead move, the Russian government used an anti-satellite missile to pulverize a deactivated satellite located in a low earth orbit 40 miles below the known trajectory of the International Space Station.  See, e.g., https://www.reuters.com/world/us-military-reports-debris-generating-event-outer-space-2021-11-15/; https://www.bbc.com/news/science-environment-5929910; https://apnews.com/article/space-exploration-science-business-697f5aa719331ab6e74102ebb06b52d8.

            Before explaining how this bonehead action did not have to risk life and property, let us make two contestable assumptions for the sake of argument:

1)         Anti-satellite technology has some legitimate and lawful, national defense uses, so the Russian technology test comports with the global treaty limiting space exploration and exploitation to “peaceful uses” “for the benefit and in the interests of all countries.”  See Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies, available at: http://www.unoosa.org/oosa/en/ourwork/spacelaw/treaties/introouterspacetreaty.html; and

2)         Russian personnel determined that the test would not damage the International Space Station, or trigger any other sort of liability for harm, even though over 1500 additional pieces of space debris were created at a location certain to fall down toward earth and cross over the Space Station orbit.  See Convention on International Liability for Damage Caused by Space Objects; available at: http://www.unoosa.org/oosa/en/ourwork/spacelaw/treaties/introliability-convention.html.

Arguably, nations need to test anti-satellite technology under actual orbital conditions rather than blow up a mockup satellite on the ground.  There must be some benefit in examining the breadth and depth of a blown-up satellite debris field.  But did Russia have to target a dead satellite so close to, and above, the Space Station?

           News flash: both operational and out of service satellites experience gravity that pulls them down toward earth.  Most active satellites use “station keeping” fuel to maintain orbit, particularly geostationary satellites designed to last over ten years and to hover in a fixed location 22,300 miles above the equator.  Low earth orbiting satellites typically have short useable lives with no station keeping capability.  Their close proximity to earth offers a different value proposition: lower costs to build, launch and access, but short usable lives and the need to launch thousands of small “cubesats” to achieve ubiquitous coverage.

           Russian officials have yet to explain why they could not have identified and targeted a dead satellite located well below the Space Station.  Every other publicly disclosed satellite explosion has occurred in a location not likely to trigger any immediate collision, even though the debris field might eventually increase the odds.   The U.S., China, and India have complied with this safeguard.

            Luckily, the occupants of the Space Station, including two Russian cosmonauts, avoided harm, but the odds for a collision increase, even without the deliberate increase in the amount of space junk.  New broadband low earth orbiting satellite constellations, operate near each other and number in the thousands.  Even in low earth orbit, only a few hundred miles from earth, tiny specks of debris travel at speeds in excess of 15,000 miles per hour.

            If you have had a car windshield crack from a stone thrown at it by a truck, you can appreciate the potential for damage from small objects with high velocity. In low earth orbit low gravity and extreme speed combine to create the real potential for more than a crack or divot.  The worse case scenario, known as the Kepler Syndrome, (see https://en.wikipedia.org/wiki/Kessler_syndrome) renders most, if not all, of space unable to support satellite networks, because of the ever increasing risk of collisions.

            Way to go Russia!

 

      

          

Making Sense Out of the FAA’s Power Play on 5G

           With growing frustration, the U.S. Federal Aviation Administration has failed to get traction on its concerns about the potential for harmful interference between newly activated 5G spectrum, at 3.7 – 3.98 GigaHertz, and mission critical aviation applications that use spectrum higher up in the C-band.  The squabble persists, despite an FCC decision to create an additional 20 MegaHertz “Guard Band,” in addition to the already established 200 MHz of spectrum, that must remain fallow, unavailable for use by any 5G wireless carrier, no matter how far subscribers would be from an airport, or known flight paths. See https://www.fcc.gov/auction/107/factsheet.

Upset that neither the Executive Branch, nor the FCC would consider the matter seriously, the FAA has played its trump card: ordering aviators not to use existing flight management applications that operate via C-band spectrum presumed by the FCC to be well protected from any prospect for interference.  Wireless carriers have responded by offering to postpone for one month activation of the expensive and now controversial spectrum.  See, e.g., https://www.reuters.com/technology/att-verizon-delay-c-band-spectrum-use-pending-air-safety-review-2021-11-04/.

At this point, few if anyone, can conclude whether the FAA is falsely claiming the “sky is falling.”  However, no one wants to end up on the wrong side of an aviation disaster including the wireless carriers that have spent over $85 billion in auctions for newly “refarmed” C-band spectrum. 

Stakeholders forecast and speculate the prospects for interference, often with a bias, one way or the other.  For example, the lack of selectivity in cheap GPS receivers and cellphone chipsets, provided grounds for John Deere and other farming equipment manufacturers to oppose FCC efforts to abate an acute wireless spectrum shortage by authorizing market entry by ventures such as Legado, that proposed to use spectrum nearby, but also separated by an even larger Guard Band to protect GPS spectrum.   See, e.g., https://www.fb.org/news/coalition-asks-lawmakers-to-intervene-in-gps-related-fcc-ruling.

This remarkable debate has the potential to shave billions of dollars off the value of wireless carrier shares, call into question the certainty of dedicated spectrum reallocations costing billions of dollars, and perhaps even handicap the efficacy of U.S. wireless 5 and 6G initiatives at the International Telecommunication Union, the intergovernmental spectrum planning forum.

High stakes indeed. 

Refuting the “Laws” of Economics . . . One at a Time

            The Covid-supply chain debacle, and the short-term thinking that has created shortages of nearly everything, except for exculpatory excuses.  This “perfect storm” offers daily reminders that knucklehead behavior does not trigger punishment, despite the laws regularly treated as irrefutable in the economics courses I took.  Here are a few laws rendered inoperative just now.

Ridiculous, Knucklehead Decisions Generate Measurable Harm to Company Profit and Employee Career Trajectory

            Simply put, I cannot catch a break in this economy.  I live near State College, Pennsylvania “centrally located in the middle of nowhere.”  Under the best conditions, the supply chain to edge towns sometimes breaks down.  But with Covid as an excuse, empty shelves have increased and car rental companies cannot honor their “reservations.”  No one gets punished in the marketplace, or suffers from a poor performance evaluation.  In many instances, the lowest priced options have evaporated, but a higher priced, possibly higher margin alternative is available.  Better pick up two or more, just like the mindset of consumers in the former Soviet Union.

Right Now is a Great Time to Make Shoplifting Harder Even if It Adds 20 Minutes for Customers to Checkout          

            The local Walmart recently reduced by about 50% the number of self-checkout terminals.  The installation of three large television screens makes me think some genius senior manager thought greater surveillance by cameras and employees will cut product shrinkage.  I am sure the manager expects to receive a bonus for saving the company millions.

            Maybe not.  The time it took me to check out and pay increased by 20 minutes and the thought crossed my mind that I should abandon my cart and leave.  Walmart loses a sale and an over worked employee has to restock the shelves with my now abandoned products.  Additionally, the possibility exists that significant numbers of Walmart customers will vote with their feet and shop somewhere else, like the Aldi that just opened nearby.

            The economic rules, that consumer behavior and revenue streams matter, seem to have evaporated.  There is a great likelihood that no one at Walmart will detect the problem, or remedy it if identified.  The shoplifting obsessed executive will not suffer for having been “pennywise and pound foolish.” 

What impact would any group of boycotting consumers have against Walmart, or for that matter any of the legacy or low cost airlines that make every effort to goose revenues by reducing the value proposition of service?  Is Southwest Airlines going to suffer in the marketplace by failing to calibrate employee availability vis a vis upside incentives to restore service schedules to their pre-pandemic levels?  Will Enterprise stop overbooking reservations, because a significant number of bookings cannot be honored?

The customer may not always be right, but are we as expendable as it seems right now?

Challenging a NYT Column Singing the Praises of Platforms and Dismissing Their Network Effects

The September 4, 2021 edition of the New York Times contains an article written by Professor Jonathan A. Knee entitled Network Effects are Overrated.  The author generally dismisses as benign, or ineffectual just about anything platform intermediaries have undertaken, despite the prevailing view that these ventures impose significant costs and benefits on consumers and society.

Professor Knee appears to dismiss the ability of platform operators to lock in subscribers and create incentives for more consumers to “get on the bandwagon.”  He also dismisses any sense that high market shares reflect a “winner take all” sweepstakes in play. Apparently, the ability to accrue scale efficiencies is not the same thing as exploiting network effects, the ability to expand the subscriber base at low incremental costs.

Professor Knee has great optimism in the ability of market entrants to capture market share and for consumers to vote with their eyes, ears, and pocketbooks and churn out of dominant platforms such as Netflix, Google, Facebook, EBay, PayPal, Uber and others.

The column curiously ignores one of the fundamental characteristics of platform intermediaries: the ability to profit from operating in a two-sided market serving both downstream consumers and upstream advertisers, data analytics firms, election meddlers, purveyors of disinformation, government surveillance agencies, and vendors.

Broadband platform intermediaries have unprecedented opportunities to get multiple bites of the apple as exemplified by Google’s ability to sell advertising, but also generate fees as the auctioneer of ad placements.  Put another way, platform intermediaries can spread fixed costs and accrue positive network effects while also generating multiple profit centers up and down a complete market “food chain.” 

Previous platform intermediaries had limited opportunities to exploit both sides of a market without jeopardizing profits.  Fior example, cable television operators and newspaper owners had to calibrate both advertising and subscription rates to maximize profits.  Attempts at gouging typically would reduce overall profits as consumers and advertisers pursued better value propositions.

Lastly, some readers of this blog may remember with fondness how Word Perfect software offered a better user experience than Microsoft Word. That notwithstanding, network effects over time forced people like me to get on the Word bandwagon, because sticking with Word Perfect guaranteed conversion and compatibility hassles.

Never underestimate the power of firms able to exploit network effects, economics of scale, and access to both sides of an integrated platform marketplace.

Walmart The Price Gouger

When it comes to pricing, the conventional wisdom considers Walmart the regular low price leader, much like Southwest Airlines.  Think again.

These companies are no less willing to exploit gouging opportunities when available.  

Consider this rip off.  In June Walmart charged 50 cents for a gallon of spring or drinking water that my wife prefers when traveling.  Apparently, chlorinated water can wreck your bacterial balance among other bad things. A few days ago, Walmart charged 67 cents for this product, a 11+ percent increase reasonably attributable to pandemic costs, etc. 

Now Walmart is charging 98 cents, nearly a 100% increase.  

Walmart would be hard pressed to provide any cost plus basis for such a substantial increase in price in such a short period of time.  Sadly, there appears to be no way the so-called marketplace can discipline and punish such price gouging as insufficient numbers of people will cote with their feet and seek the 80 cent option available at Food Lion.

In this greedy, rip off, make up for lost profits environment, buyer beware,