Mankiw again writes a column critical of the Department of Justice new Antitrust Chief Christine Varney (see NY Times). Let me first begin by stating that Varney was once a Board member in one of my companies and I think quite highly of her. She is a truly competent attorney and experienced in the ways of Washington. Second let me state that I have written extensively on antitrust law as applied to telecommunications and as such have both a legal perspective and hands on experience in its use and misuse. Mankiw is an economist and I need say no more.
Let me address two simple examples. Both relate to tying agreements and antitrust remedies.
Access and Interconnection Fees: This is the old question of, if there are local telephone providers and long distance providers, then the customer should be able to choose their combination and the incumbent should not receive a benefit from an access fee just because they were an incumbent. The local wireline companies receive an access payment from the wireless carriers because the externality presented by the wireline is supposed to be a benefit. Well there are now more wireless phones than wireline and thus should the benefit switch, likely not to. This was based upon the old Baumol Willig theorem, a classic example is sloppy economics. The failure of the Antitrust Division to do anything about this after the 1996 Telecom Act led in my opinion to the collapse of the Telecom market in 2000-2001.
Digital Cable Converters: Companies like Cablevision and others have decided that they will take economic advantage of their customers in two ways. First they have been raising their rates between 6-10% per annum for the past several years. It costs now almost $55 per month for a modest basic cable package and about $50 per month for broadband. The former contains a couple of dozen channels of no import, it excludes all CSPAN for example, and is not digital. They charge an additional $10 per month per television set for a digital converter. The converter costs wholesale about $25-30 in bulk! That means there is at most a 3 month payback and then in my opinion an almost extortionary payment to Cablevision. They keep removing channels from basic forcing the subscriber who has no alternative to pay for this box. It is in my opinion a tying agreement. They should specify the box allow TVs to be digital cable ready for their system or allow third party manufacturers to sell the product. This is a great antitrust case. Mankiw would disagree.
Now to Microsoft. The bundling of Windows and Internet Explorer is a tying arrangement and moreover the nexus between the browser and the operating system was the portal through which all Internet cyber terrorists enter. Firefox has a firewall, the Microsoft product has monthly updates. I believe that Mankiw's rant is without merit and that the Antitrust Division under Varney has a chance again to allow equity across markets.
Let me address two simple examples. Both relate to tying agreements and antitrust remedies.
Access and Interconnection Fees: This is the old question of, if there are local telephone providers and long distance providers, then the customer should be able to choose their combination and the incumbent should not receive a benefit from an access fee just because they were an incumbent. The local wireline companies receive an access payment from the wireless carriers because the externality presented by the wireline is supposed to be a benefit. Well there are now more wireless phones than wireline and thus should the benefit switch, likely not to. This was based upon the old Baumol Willig theorem, a classic example is sloppy economics. The failure of the Antitrust Division to do anything about this after the 1996 Telecom Act led in my opinion to the collapse of the Telecom market in 2000-2001.
Digital Cable Converters: Companies like Cablevision and others have decided that they will take economic advantage of their customers in two ways. First they have been raising their rates between 6-10% per annum for the past several years. It costs now almost $55 per month for a modest basic cable package and about $50 per month for broadband. The former contains a couple of dozen channels of no import, it excludes all CSPAN for example, and is not digital. They charge an additional $10 per month per television set for a digital converter. The converter costs wholesale about $25-30 in bulk! That means there is at most a 3 month payback and then in my opinion an almost extortionary payment to Cablevision. They keep removing channels from basic forcing the subscriber who has no alternative to pay for this box. It is in my opinion a tying agreement. They should specify the box allow TVs to be digital cable ready for their system or allow third party manufacturers to sell the product. This is a great antitrust case. Mankiw would disagree.
Now to Microsoft. The bundling of Windows and Internet Explorer is a tying arrangement and moreover the nexus between the browser and the operating system was the portal through which all Internet cyber terrorists enter. Firefox has a firewall, the Microsoft product has monthly updates. I believe that Mankiw's rant is without merit and that the Antitrust Division under Varney has a chance again to allow equity across markets.
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