Tuesday, March 02, 2010

Two economists views on smartphone wars

[Robert Hahn and Hal Singer] Regulators may find it hard to ignore the whiffs of market power given off by muscular players in markets that are routinely shocked by innovation because it is hard to know what good things might have happened if they hadn’t intervened. In contrast, the benefits of intervention are easier to assess, and there is often a constituency that stands to reap those benefits. For example, some small rural carriers argue that terminating the iPhone-AT&T exclusive contract would enable them to offer the iPhone and more aggressively compete with AT&T for customers.

But do small carriers (or AT&T’s giant competitors) need access to the iPhone to compete effectively with AT&T? The question should not be whether a company like Cellular South would benefit from access to the iPhone (it likely would), but rather whether Cellular South needs the iPhone to constrain the price of AT&T’s wireless offerings or to induce rival handset makers to accelerate delivery of competing smartphones. And though the iPhone represented a marketing triumph for Apple and AT&T, there is nothing about it that constitutes a must-have input.

More generally, while regulators look askance at virtually any vertical restraint that leaves rivals out in the cold, the burden of proof should rest with those who claim that consumers (as well as rivals) will be harmed. It is very hard to predict the impact of changing technology or consumer taste, especially in markets in which innovation has a way of redefining the product. And in a world in which economic growth so depends on innovation, the stakes are just too high for regulators to guess.

Smart Phone Wars pp 55-61 Milken Inst. Rev.

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