Theme #3: Telecommunications and Network Policy Flashcards
What were the important outcomes of the Rail and Telegraph Revolution (1840s)
- Formation of continental scale economy. For the first time, there was national economic unity.
- The separation of communication from transportation
- Control at a distance due to the separation of communication from transportation
When did the Rail and Telegraph Revolution take place?
1840s
What is “Invention”?
Invention refers to the raw technological creation
What is “Innovation”?
Innovation refers to the implementation of an invention in society. Basically, making an invention useful.
Who created telephony?
Alexander Grahm Bell
What is the significance of Alexander Grahm Bell?
Alexander Grahm Bell created the telephone, as well as, the Bell Telephone Company in 1877 which would later become AT&T
What are the four economic effects which lead to a “natural monopoly”?
- Network Effects
- Switching Costs
- The Economies of Scale and Scope
- Monopoly Leveraging
What are network effects?
Network effects refer to a phenomenon where the value of a good or service goes up with each additional user.
For example, think about social media. If you have two social media companies “Stevebook” and “Facebook”, and Stevebook if the better app, why is it that Facebook has and maintained more users? It’s because everyone you know or interact with is on Facebook. Since nobody you know is on Stevebook, you have no purpose using the app, thus its value goes down. However, if more people you know started using it, its value will go up and eventually you would start using it too.
What are economies of scale and scope?
Economies of scale and scope refer to
high fixed costs and low marginal costs.
For example, think about brick production. To produce one brick will cost $5 million dollars because you have to build the factory to do it (high fixed cost). However, now that the factory is built, the cost to produce every brick following that first one goes down to 5 cents (low marginal costs).
What is a high fixed cost?
The amount of money it takes to produce the first product.
Ex: $5 million to produce one brick because you have to build the factory
What is a low marginal cost?
The amount of money it takes to produce the additional products following the first one
Ex: 5 cents to build every brick after the first one.
What are switching costs?
Switching costs refer to the cost not always monetary of switching or leaving networks/services/platforms for a competitor networks/services/platforms.
Ex: The price you pay to switch you telephone service provider from AT&T to Verizon
What is phone number portability?
Phone number portability refers to a practice used to combat anti-competitiveness is the telephone industry. It involves people’s ability to keep their phones if they want to switch telephone service providers.
Since it would be too much work to change your phone number every time you switched your provider, nobody would ever switch, so this policy was put in place so it did not thwart people from switching providers and encouraging competition between companies.
What is monopoly leveraging?
Monopoly leveraging occurs when a company uses its market power in one industry or sector to dominate or control adjacent market sectors.
Ex: AT&T started out in the long-distance services and used its prominence in that industry to control the local telephone service industry.
What is a natural monopoly?
A natural monopoly is a sector in which the economic effects of network effects, economies of scale and scope, switching costs, and monopoly leveraging are so strong that they lead to an inevitable monopoly.
