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博士经济论文英语范文-Monopoly Telecommunication Profit(垄断电信利润探析)

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博士经济论文英语范文-Monopoly Telecommunication Profit(垄断电信利润探析)


Monopoly in Telecommunication


In many cases of developing countries telecommunication monopolists who sell out output do not appear to act in the competitive fashion suggested by different researchers. This indicates the firm's owners mitigate their profit with buyers in some manner. This paper shows that monopoly incentives provide a natural mechanism for the owner to mitigate its profit in small developing countries without explicitly contracting with buyers.

Owners will optimally shift their managers from the singular goal of profit maximization by penalizing them for sales. Additionally, the paper demonstrates that the degree to which monopolies' incentives and compensation diverge from pure profit maximization is in large part a function of the durability or quality of the services.


Topic deviation

For much of the twentieth century, the guiding principle behind many countries' telecommunications market structure was the notion that the telecommunications industry is a natural monopoly. (An industry is a natural monopoly if the production of a particular good or service by a single firm minimizes cost.) Under such conditions, entry into the industry was not feasible and countries had to decide ownership structure and, if private ownership was allowed, the form of regulation needed to prevent monopoly profits.

The difficult task for regulators is, and has always been, identifying whether telecommunications, or some part of it, exhibits characteristics of natural monopoly and whether, once it is so established, is it a permanent or temporary one.

The sources of transformation from a natural monopoly to a workably competitive one consist of cost and demand conditions. As costs change, a firm's minimum efficient scale of production -- which when viewed in relation to the total industry demand determines whether an industry exhibits natural monopoly characteristics - also changes and affects whether the market has become workably competitive.

While there is considerable debate regarding the absolute level of technological change in the telecommunications industry, and in particular whether that changes affects all services equally, it is certainly the case that the industry experienced and is continuing to experience dramatic advancement. These include advances in fiber optics, wireless telephony (cellular telephone service, personal communications services), and digital electronics (common channel signaling, data compression, and high-speed switching).

After keeping above fact in mind I have decided to take little twist in my thesis, and now I will make my research in the honor of monopoly market, because telecommunication industry is huge investment area so in order to recover that investment from small regions this industry should come under the monopoly regulation. It is the best way to provide the desired quality to customer and reap the investment back in corporate perspective.



The telecommunications industry is the setting of an impressive dynamic process of multiple and interrelated innovations. While this is partly due to the pace of innovation in related technological domains - especially computers and electronics - the industry did generate per se essential technical advances in domains such as radio and satellite communication, optic transmission, among others.

These major evolutions were concomitant with the ascent of a generalized and global competition in an industry that was previously highly regulated and vertically integrated until the middle of the 1980s. While the above-sketched developments have been discussed and analyzed separately in numerous academic journals and business publications, one of the essential contributions of this Special Issue is that it addresses jointly these two major phenomena.

Indeed, most of the papers are dedicated to getting a better understanding of the dynamics of innovation in relation to institutional and organizational changes at the industry level.

Most of the researchers in this Special Issue rely on the appreciative theorizing method of Richard Nelson and Sidney Winter. This type of research does not aim at creating generalized scientific results, but aims at providing useful insights and patterns about one or more cases that may apply in other contexts.

This research method is useful and appropriate when one deals with highly complex problems; and, for sure, the links between technical change, the organization of industry and the institutional framework raise complex questions.

Moreover, since the different researches overlap, as will be appeared later on, the credibility of each individual research insights tends to be reinforced by their joint research.

Case studies and econometric statistical analysis are used in the following contributions to interpret historical records, and to analyze current developments in order to improve our understanding of the future of the telecommunications industry.

All researches focus their attention on the role of institutional forms and the organization of industry, on the source and nature of innovation, on its impact on relevant product life cycles, and on innovators' profitability or users' productivity. Generally speaking, this volume raises some intriguing results:

The so-called "deregulation" (or liberalization) process changed the nature of innovations. The present innovations are less radical than the earlier innovations and they are driven by engineering learning rather than by basic science. This highlights the role of technological innovation in the future telecommunications industry, and whether there is a leveling in terms of technological disruptions and transitions.

The second major evolution is a falling return on R&D investments, as firms invest more and more in R&D. In a sense, we should expect this in the case of a maturing technology: we get diminishing returns combined with strong incentives to innovate as a consequence of enhanced competition. What, then, is the sustainability of such an evolution?

Post-liberalization innovation is based on flexible networking among companies highly specialized in specific technology sub-fields, while pre-liberalization innovation was based on in-house R&D efforts performed by vertically integrated firms that dominated and controlled their markets.

The way these basic components of the R&D effort are combined can generate very different paths and processes of innovation. How will the organization of innovative activities in the technologies of the so-called "New Economy" look? What will the role of coordination be for innovation and the role of markets in the "New Economy"? What are the coordination needs for the new networking mode of innovation? Is the new innovation regime sustainable?

While such results and questions deserve deeper investigation, they suggest that the future of the telecommunications industry depends upon the choices that will be made in the near future by industry players, lead users, governments and international organizations.

Indeed, since several models of industrial evolution are possibly sustainable, since institutions matter, since path dependencies are strong, and since the telecommunications industry is global, the complex set of national and international regulations as well as the strategic questions played by innovators will have strong impact on the dynamics of technology. These circumstances call for policy choices and debates, and for more research to enlighten them.


In the following sections we will better understand the telecommunication's various problems by demonstrating how the contributions in this research enable us to:

Characterize the new innovation regime

Address the performance and sustainability of the new innovation regime

Reflect on institutional choices and management in the new innovation regime

And finally, discuss coordination and policy outlooks for this new innovation regime

A Shift toward a New Innovation Regime

The telecommunications industry produced two of the most dynamic and innovative industries of the 1990s: Internet and mobile telephony. Fundamentally, Internet emerged as a result of the convergence of computers and the global telecommunication network, while mobile telephony resulted from the merger of radio communication and fixed telecommunication.

In that sense, these two industries can be regarded as Schumpeterian innovations since they result from the fruitful combination of existing knowledge into a new set of competencies and products, rather than inventions ex nihilo.

In addition, this type of recombination is still prevalent in the telecommunications industry, for example the merger of Internet and mobile telephony in the third-generation mobile telephone systems.

While all these new technologies and associated applications relied on and benefited from the development of the fixed telecommunication networks, they were coupled with a fundamental reorganization of the telecommunications industry. First, the telecommunication monopolies were disintegrated both horizontally and vertically.

Horizontal disintegration resulted in competition, and vertical disintegration in outsourcing and competition between suppliers. Second, the telecommunications industry became an international industry with global competition and global firms.

Third, standardization efforts became more pluralistic; ITU as an international standardization body was complemented by de facto market standards and the European standardization agency ETSI, for instance.

Neither the authors nor we pretend to present a "grand scheme" to explain these evolutions, but the wide-ranging issues invite reflection. First, we must underscore that the divestiture of the former integrated industrial structures and the emergence of competition in formerly regulated monopolies did not arise only because of new pricing policies aimed at capturing rents of the former public telephone operators (PTOs). Technological change was involved in an important sense.

However, while technological change is necessary, it is not a sufficient condition for the large-scale changes we have seen. To comprehend the role of institutions, consider that many of the technologies which have become the technological basis of the quasi-big bang of the telecommunications markets in the last decade have their roots in the 1960s-1970s.

If it took so long to bring this set of technologies to the market (from packet switching to wireless communication), it was partly due to the inadequacy of the former institutional system. Vertically integrated telecommunication monopolies were able to slow the implementation of technical changes in order to recover their investments in equipment that embodied the former technological generation. Liberalization and restructuring were therefore ways to stimulate the implementation of new technologies.

Hicks is one of the authors who point out how the liberalization of the provision of telecommunication services had a strong impact on the innovation process in the industry. In a first period, it led former PTOs to outsource their R&D and to diversify their equipment procurement. Indeed, the competition among former PTOs resulted in reduced tariffs and a downward pressure on the price level of telecommunication equipment.

In turn, equipment manufacturers started to outsource their R&D efforts, mainly by developing alliances. These alliances did not have a single direction in terms of industry focus. Fransman suggests that the entry of new players (data networking equipment suppliers and software companies) stimulated innovation by networking with traditional telecom equipment manufacturers and telecom service providers.

However, the reorganization of the innovative process is not only linked to the liberalization of the provision of telecommunication services. Fransman reminds us that a more general reshaping of industries resulted from the evolution of technologies, markets and firm strategies, often denoted "convergence" among telecommunications, computers, software, media and information-based services.


Changes in the telecommunications industries arose both because new entrants penetrated the industry in its traditional functions and because telecommunications technologies and firms penetrated new industries: computing, software, broadcasting, services, etc. The development of new technologies was unavoidable, and reorganization and liberalization enlarged the available set of technologies to build and operate new multimedia networks.

Another driving force of the evolution of the industry is the globalization that also has roots in the technological evolutions. Innovation in information technologies seems to be subject to a kind of inverse Moore's law: production costs per unit are kept stable, and performance increases steadily - doubling of memory space, doubling of speed, etc., every year - but investment costs are growing at a seemingly predictable and strong pace.

This is the case because technological progress is increasingly R&D-intensive and because the costs of plants to produce new electronic components - from chips to microprocessors - are skyrocketing with each technological generation. Consequently, Moore's law is linked to an increasing length of production series to fully benefit from the economies of scale. So far, the equipment and software providers have been able to master the increasing costs by benefiting from enlarged and increasingly global markets.

The globalization and its financial repercussions also explain why innovation tends to be organized in a different way than before. The ever-increasing level of investment required to produce innovations (e.g. the amount of investments necessary to produce new electronic devices, for example memory chips, disk drives and microprocessors) led firms both to share risks with strategic alliances and to specialize themselves in sub-technological fields. These are additional reasons why the organization of the innovation process evolved from in-house R&D to networked research project and alliances.

The new, global and networked type of research resulted in major changes in the innovation process. First, the locus of innovative activities moved from the service providers to the equipment manufacturers as well as to independent software providers. More precisely, service providers are mainly marketing innovators, whose innovative activities are strongly dependent upon the ability of equipment manufacturers to generate new devices capable of adding functionality to the existing portfolio of digital technologies.

Second, individual firms no longer control innovation. This is due, inter alia, to the modularity of digital technologies, to the restructuring of former monopolies, and to the increasing complexity of technical systems aimed at communicating or processing information.

The changed innovation process had two major impacts. First, the pace of innovation dramatically accelerated due to the intense competition based on innovation. The pre-liberalization quasi-integration between suppliers and service providers favored a more controlled pace of innovation in order to safeguard return on investments, which were essentially infrastructure equipment that requires a long term to be recovered.

Furthermore, the very nature of innovation changed. In the past, innovation was more radical - to a great extent based on fundamental research - and radically new technologies were implemented throughout the whole market by long-term waves.

Present innovation is permanent and cumulative, based on incremental enhancements that are immediately brought to the market. Researchers insist particularly on this essential feature of the new path of innovation. Innovation has become more based on cooperation among firms and this affects the nature of innovation.

Beyond these "stylized facts" and suggested interpretations, the papers in this issue point out other analytical questions highlighted by these evolutions. For instance:

Hicks points out that there is a misfit between the traditional representations of sovereign innovators that strategically invest in R&D and marketing, and the way innovation decisions are actually made in networks of interdependent firms. Indeed, technological interdependencies mean in concrete terms that individual return on innovation is strongly dependent upon partners' behaviors, and a number of questions can be posed: Are these behaviors consciously or spontaneously coordinated? Is this coordination predictable or not? What is the role of governance and conventions (in the sense of common beliefs), besides the more traditional role of strategic behavior?

Fransman points out that it is in fact difficult to identify industries' boundaries. While technological and industrial specificities exist, and competitive arenas can be identified, the dynamics of one industry cannot be separated from the dynamics of other industries.

Moreover, since those various dynamics are dependent upon permanent recombinations of inputs and outputs, industry boundaries are like firm boundaries: in permanent evolution and very permeable. Again, the changing boundaries challenge the traditional way of thinking about corporate behavior (and policy-making). Competitors' behaviors and industry structure do not sum up all the constraints and opportunities for actions since the topology and the rules of the questions are continuously evolving and changing.

Both insights confirm that appreciative theorizing and applied studies are useful to identify relevant theoretical and methodological issues which should be deepened. Moreover, they point out many stimulating ways to deal with these issues.

The New Innovation Regime: Performance and Sustainability(无忧发表网http://www.51fabiaowang.com/

What will then be the impact of the new innovation regime on performance and long-term sustainable growth? Several researches address this question, but there are no simple answers.

The impact of this new path of innovation on growth is unclear, as the continuous implementation of new technologies makes it difficult for both service providers and final users to recover their tangible and intangible (learning, training) investments in each new technological generation. Moreover, since innovation is less radical than before, it is not clear whether innovative activities will be able to generate strong productivity effects.

Madden and Savage especially point this out, showing that technical change negatively influenced total factor productivity (TFP). In a similar vein, researcher points out that industry productivity growth continued to be strong after the divestiture of 1984, albeit at a slightly lower rate than in the previous period.

These observations do not necessarily mean that innovation in the telecommunications industry has had a negative impact on productivity, profits and growth. We can imagine a number of different interpretations:

This productivity gap indicates that innovation does not automatically result in better economic performance. For instance, too strong competition can generate a waste of resources and some delays are necessary to recover investments.

The productivity measures may be unsuitable to trace the effects of the radical demand shifts and the quality enhancements and price changes that the innovations in the telecommunications industries have triggered. Developments such as the rapid growth of mobile telecommunications, unified national tariffs and the expansion of Internet could be mentioned as examples.

Despite the controversial impact of technical innovation in telecommunication, the telecommunications industry profoundly contributed to economic performance. As pointed out by Nadiri and Nandi, infrastructure, especially telecommunication, generates positive externalities for customers. This means that a part of the increased value of uses of telecommunication networks has been transmitted for free to the final customers.

Put another way, some positive impacts of innovation in the telecommunication sector upon productivity cannot be measured in the absence of calculus based on hedonic prices. However, as pointed out both in the research by Nadiri and Nandi and by Madden and Savage, one essential cause of the positive contribution of the telecommunications industry to the TFP is due to the liberalization. The restructuring of former monopolies, together with the privatization of former PTOs, led firms to more efficiently manage the available resources, while at the same time it modified the nature of innovation.

While the effects of innovation on productivity are still disputed, the relationship between sustainability and this new path of innovation can be more clearly identified. More precisely, one needs to differentiate between short-term and long-term sustainable growth.

Hence, one can argue that the unclear TFP effects are short-term, and that in the long term the positive TFP effects will emerge. However, long-term sustainable growth is also questionable from several points of view. First, the role of financial markets is essential. Since many analysts continue to identify numerous possibilities of monopoly power in the telecommunications industry, investors accept risking substantial amounts of money in a potentially highly profitable race to dominant positions.

We find here a kind of gigantic paradox. The intense present competition was caused by the restructuring of the pre-existing monopolies, but everybody expects that new dominant firms will emerge. At least, this is a rationale behind the fact that financial markets continue to intensely finance projects whose return on investment is not guaranteed at all in the short term (and in a context in which everybody expects that a new technological generation will appear in the next six months).

Whatever its causes and its potential inconsistency, the speculative bubble plays an essential role in the financing of the present technological race. But its very nature raises the question of the long-term sustainability of the ongoing process. Will financial markets continue for long to finance profitless innovation? Will the industry structure evolve towards better control over return on R&D as well as on infrastructure investments? For sure, consolidations have to be expected...and they are indeed likely if one considers the behavior of financial investors.

Further, questions can be posed concerning the innovation path. First, if new dominant firms emerge one can speculate about long-term innovative capability. This capability is not only a question of market power and incentives to innovate. Indeed, as pointed out by Fransman, AT&T and similar companies are undermined because they are unable to control the development of new niches and emerging markets.

According to Fransman, these companies are unable to master a sufficiently wide set of competencies to be able to control the technological developments on new markets. In addition, these large companies are often unable to identify the relevant sub-markets. Rao confirms this by pointing out that the vertical integration of AT&T prevented it from efficiently appraising the pay-off of its various R&D programs. Another interpretation is that the internal structures of large organizations are unable to put the funds allocated to R&D under the control of their marketing and sales departments.

This mismatch resulted both in over-investment in science and inefficient allocation of funds among projects. While McKelvey notes that there is no evidence that a dominant company like Microsoft inefficiently innovated, one may wonder if Microsoft will continue to be able to control the development of all the technologies it is now involved in. It might be that the divestiture of Microsoft would be a good thing for Microsoft because the two "Baby Bills" will be more efficient.

Furthermore, the question of the financing of basic research becomes essential. However, as pointed out by reseacher, the new dynamic of innovation does not provide the necessary funds and incentives to support basic research. This is illustrated by the spin-off of Lucent by AT&T. There is no evidence today that players will be able to fund such research which is essential for future innovations.

As noted by different researchers, the present wave of innovation is characterized by incremental innovations based upon either engineering capabilities or marketing knowledge. In that context, many players are able to stay in the competitive race by deepening their specific knowledge about a question, and by interacting with other companies involved in complementary technological slots.

This mode of innovation will continue since it will be essential in the race, because competitors will not abstain from innovating and because business partners will produce innovations that call for incremental enhancements.

These questions certainly invite the development of more precise studies about the impact of the organization of innovation.

Institutional and Organizational Issues: Managing Technological Interdependencies

As pointed out above, the new dynamic of innovation is quite different from the one that existed previously. What changed? How did it change? What are the relationships between technology and institutional frameworks? The answer to these fundamental questions is complex since the technology basis and the institutional framework are interdependent. It is clear that the rise of digital technologies was instrumental for the institutional changes in the 1980s.

The new technologies created new entrants, and the old monopolies were inefficiently organized to implement technological progress in their systems, because many segments of the telecommunications networks could no longer be considered natural monopolies. At the same time, the institutional framework deeply influences the innovative process and the nature of innovation.

Most researches in this issue point out the tremendous impact of the restructuring of former monopolies and privatization in the telecommunications industries. These major changes in the institutional framework increased the incentives to innovate and implement innovation. Moreover, privatization enabled an increasing amount of money to be raised, which in itself was one cause of the skyrocketing demand for new equipment that in turn sustained the acceleration of technical evolution.

The reorganization of former national monopolies led to the disentanglement of their links with the traditional and integrated equipment manufacturers as well. Service providers and equipment manufacturers had to revise their competitive positioning by targeting specific niches on the international market. This phenomenon combined with the entry of new competitors contributed to the development of the new industrial and innovative model based on modularity and networking.

While the general tendencies toward modularity and networking exist, this does not mean that there is only one single possible organization of the industry. Indeed, as pointed out by McKelvey's paper, several innovative models are possible. While the technology is more modular than before, interfaces are still complex and costly to manage. Innovators have to innovate in compatible ways. This is made possible by the existence of mostly de facto - standardized interfaces.

However, in an innovative context, interfaces also have to change. Since de jure evolutions are too slow (as compared to the pace of innovation) and since general agreements are complex to settle (and to be actually enforced), several standards are continuously competing. Limits on the pace of innovation may develop because resources are lost in the competition among standards and because no standard is really universal.

Users are also impacted by the management of interdependencies between the components of the technological system. Obviously, modularity enables them to combine the diverse technologies and closely link them to their actual needs. However, the lack of standards generates high research and implementation costs. In response, players are triggered to outsource the management of these interdependencies.

The classic industrial one is where a company becomes an assembler, an integrator, as Microsoft did, mimicking car manufacturers. Opposite to it is the open standardization committee illustrated by Linux. The interesting point is that in order to dynamically manage standardized interfaces, a new type of standardization committee emerged.

In fact, Linus Thorsvald is the standardization committee. It is not therefore a committee that represents the interests of all the parties that set standards, but a single individual acting like a "deus ex machina" and motivated by a special utility function integrating the various interests. The last model - illustrated by Netscape - is a hybrid one.

One of the important questions that follow is the efficient management of technological interdependencies.

One research addresses this management challenge in two ways. First, there are different property rights regimes - characterized by contrasting regimes in terms of both exclusion and appropriation - that generate different types of output and innovation processes. The recent literature on intellectual property rights contrasts two models: that of "open science" and that of "closed technology". The idea is that an innovator can choose either to maximize the production of externalities (which finally have positive effects for him in the form of additional developments and other feedback loops) or to maximize the capture of innovation rents.

The two models have contrasting impacts in terms of income distribution as well as of benefits from innovation diffusion. However, they do not significantly differ as regards the intensity of innovation. Both contrasted models also have different features in terms of instability and controllability. It is therefore difficult to assess whether one model is better than the other in terms of efficiency. One may, however, "prefer" the output of one model to the output of the other.

Second, that research raises the idea that in open standards systems - corresponding to the Linux case - there are alternative ways to govern the evolution of standards. When one compares the Linux system to the Internet system (ISOC, ICANN and so forth), very different ways of standardizing are contrasted.

Assuredly, those different governance modes will induce different standards and dynamics of standardization. While the governance of standardization processes already receives some attention from economists, further research must be carried out to get a better understanding of this question.

Nevertheless, the management of technological interdependencies goes far beyond the question of standardization processes. While this phenomenon is widely recognized, knowledge about the management of these networks is quite loose. Indeed, nobody knows exactly whether the dynamic of innovation can be controlled in those networks.

In addition, we do not really know if it is possible to implement governance structures able to manage radical innovative processes in the long run. As pointed out by researcher, in an industrial context in which innovation is decentralized, individual strategic actions are considerably bounded by the evolution of the system. Finding appropriate governance modes influences both the propensity to invent and the nature of innovation.

Governance, however, is not the sole issue to be considered. Beliefs, values, and shared norms also have to be taken into account when one deals with coordination issues. Technological trajectories could be regarded as a case of controlled hysteria by making the uncertain territory certain through a shared belief system - the trajectory. This trajectory is then self-fulfilling. Indeed difficult and hard-to-evaluate investment decisions are simplified into a calculable question with a large number of sequentially linked minor decisions.

Policy Outlooks for the New Innovation Regime

While most of the questions we have addressed remain open, they all suggest that there is no technological determinism. Indeed, we just wrote that the nature and the pace of innovation are strongly dependent upon the way innovation processes are managed by specific organizational architectures and institutional regimes.

We also pointed out that various ways of managing those interdependencies are possible. While they result in diverse technological paths, they may all be sustainable. Thus, the features of the so-called "New Economy" are not solely technology-driven. On the contrary, the "New Economy" is very open and contingent upon organizational and institutional choices. While a great part of these choices will be decentralized, the diverse contributions in this issue point out the lingering importance of public or at least collective action.

For instance, Madden notes the impact of the incentive system. Different researchers insist on the consequences of path dependency and institutional embeddedness. Some of them stress the ability of coordinating devices to reconcile conflicting interests and to take into account long-term collective interests.

What, then, is the appropriate scope of policy? Researcher makes here an important observation, which is also one of the conclusions of other researchers: the relevant level of coordination is no longer the national one, or the regional one. Indeed, most markets, firms and networks of alliances are global. Therefore, it may appear that there is no sense in trying to control the system at the local level, even when one speaks of coordination of innovation policies.

However, as pointed out by researchers, networks of firms organized on a national basis remain the locus of innovation when one considers sub-technological domains. This suggests that coordination policies could succeed at a national or regional level, if they target a specific technological field in which the economic entity concerned has a proven record of being dynamic and competitive. To some extent, it is exactly what happened in Europe at the beginning of the 1990s with mobile telephony, and with the creation of ETSI. Successful innovation policies are thus possible but the relevant policy varies strongly from one technological field to another.

We can cast the net wider yet. An important research and policy issue is how the new innovation regime will contribute to a sustainable information society, and how policy should be designed to promote such an end. What are the appropriate policy options and actions to make sure that innovation and convergence in communications will enhance wider political objectives? The growth, adoption and development of the information society and its consequence, the "knowledge economy", rest upon a number of well-known "increasing returns" conditions, which in turn have generated visions of a number of "win-win" prospects and scenarios, rather than traditional "zero-sum" games.

In this context, sustainability concerns are not a question of negative trade-offs and constraints but opportunities for future prosperity and growth. Put differently, to the extent that knowledge can serve to improve our behavior and improve the development of our societies, the information society will reinforce sustainable development. There will be a number of challenges along the way, and the information society will also have negative consequences for sustainability, but research can serve to improve our understanding of the critical policy options.

Innovation in convergence becomes, in this context, not only an issue of growth and societal impacts, but a part of traditional security concerns as well. Innovation and growth without attention to sustainability may not only be problematic for some ill-fated groups of society, but may seriously limit any region's aspiration to prosperity and security, as the dynamic repercussions of unsustainability on its citizens and neighbors may take unexpected turns.

Related to this point, what kinds of policy goal-conflicts are implicit in innovation policy for information society technology (IST), and how will consideration of sustainability serve to reveal these potential goal conflicts? For instance, does sustainability mean the conservation of culture (if we are addressing cultural sustainability), or is it more sustainable to change the culture through e.g. Internet? If we go with the change, which changes are then sustainable? Likewise, what variables are important in terms of social sustainability in the information society? The "digital divide" is a major concern in this context, and innovation policy for IST cannot escape questions on equity and fairness.

Clearly, we will not be able even to begin providing answers to the far-reaching questions addressed in this Special Issue. As this volume shows, there are plenty of questions and a number of promising topics that deserve more thoughtful attention, and we hope that the papers presented here will stimulate further research, appreciative approaches and collaboration.


Literature review

Network Monopolies: Telecommunications

In terms of product line, few industries could be more disparate than the pharmaceutical and telecommunications industries. But despite the differences in their products, their uneasy relationship to state power is remarkably similar.'*' Competitive solutions do not work with either patents or network industries. In both settings the key firms have an element of monopoly power. In telecommunications, the monopoly resides (or more accurately, resided) in the occupation of the local exchange carrier (LEC), through whose facilities all landline calls must (or had to) be made.

In the patent case, the constraints on monopolies come through limitations in the duration and the scope of the patent. In contrast, with LECs the most notable constraints come through the various duties to interconnect, to supply unbundled network elements to rivals, or to engage in universal service. The nature of the quid pro quo, however, is incidental to the main theme of this Lecture, which is the sequence of performance in situations where firms arguably have monopoly power.

Telecommunications companies have to install their networks today and recover the installation cost over time. Once installed, they may well have monopoly power in certain markets—a proposition that was far truer in 1996 when the Telecommunications Act was passed than it is today— and that, in turn, raises the question how government regulation responds to that power.

Will it allow for the appropriate rate of return? Or will its actions amount to a form of confiscation? To be sure, the questions here have some manifest technical differences. Interconnection obligations, which are key to the telecommunications industry, have no obvious parallels in patent law, just as the role of limited patent protections has no obvious parallel in telecommunications law. But in both cases, the creation of a legal monopoly is justified. With patents, it is to encourage innovation, whereas with telecommunications, it is to prevent the redundant duplication or destructive Balkanization of the basic network.

To see how this all plays out, put yourself back in the mindset of 1900 or even 1985. In those days, there was only one way to connect any particular home to the communications network, and that was to bury a wire that went from that home to the central facility and connected it to the rest of the network. This was called the "last-mile" problem, in light of the obvious redundancy of running two or twenty wires to any given subscriber.

It was this hard-wired feature that led to the system of cradle-to-grave regulation that characterized the AT&T monopoly before its 1982 judicial breakup. The reason this industry became a monopoly is because it was extremely expensive to run a second wire after the first. In addition, since the second wire ran to a different exchange, it would be necessary to connect the two exchanges, one to another, otherwise people who were on exchange one could not call people who were on exchange two.

Everybody in the telecommunications business knows the vital importance of the network effect, which is the positive correlation between the value a subscriber derives from joining a given network and the number of people that subscriber is able to reach. If the subscriber can only reach four other persons by walkie-talkie, the network is of limited value.

If the subscriber can reach anyone with a telephone anywhere in the world, the value is far greater. The basic objective of any system of telecommunications is to make sure that this last goal is reached at the lowest possible cost. Anyone in the world with a phone should be able to link up with anyone else with a phone.

Telecommunication Monopoly: Best Choice for Small Developing Countries

Developing countries with small population presents an acute dilemma for competition policy. A small economy tends to be less competitive. Markets have fewer players and are more concentrated than in bigger economies. A less competitive economy tends to be less productive, less efficient. From this perspective, there is a need to vigorously stamp out anti-competitive practices and prevent monopolistic exploitation.

But in a small economy, some firms will be so small that they cannot achieve the benefits of large-scale production. From this perspective, if competition policy is pursued vigorously, it may inhibit the attainment of the economies of scale available in bigger countries.

What balance should be struck between these considerations? Is there an irreconcilable conflict between competition policy and the achievement of high productivity in such small developing countries? Is there a way to resolve it?

Besides, the adequate processes built into the laws to resolve it. Many forms of anti-competitive behaviour -- cartel agreements, abuse of market power by dominant firms -- have no redeeming benefits and the absence of competition may cause inflated costs.

Besides directly harming consumers, much anti-competitive behaviour causes other industries to pay excessive prices for their inputs. This impedes their ability to operate efficiently and to stand up to international competition. In such cases, anti-competitive behaviour should be vigorously opposed.

Sectors such as telecommunication exposed to international competition need large scale most. In those sectors, where the firms compete with highly efficient large overseas firms, the econonmy should force to prevail the monopoly for the better service. Large-scale operation and competition objectives have been consistent.

There are many industries where economies of scale are not significant -- for example, parts of sectors such as agriculture, building and construction, and services -- so the conflict may not be so acute. But when it exists, can it be resolved?

Competition law in such small developing countries differs from that in many other countries. In the US, anti-competitive mergers are prohibited irrespective of any wider public benefits that may accrue. In Europe, the same approach applies in practice.

Still, the promotion of competition is vital in developing countries economy. Anti-competitive conduct or mergers are authorised only under stringent conditions. The onus is on applicants to satisfy the commission or tribunal of their case. They must demonstrate a benefit to the public that outweighs the detriment to competition. And the process is public and transparent, with provision for customers, consumers and others to contribute.

In the small economy, government need to pursue monopoly vigorously, but in selected cases we make exceptions where a good case exists.

Telecommunication as a strong natural monopoly

In developing countries like Bangladesh there has been a strong economic argument that telecommunications is a natural monopoly, that economies of scale are such that competition did not make sense.

Most specifically, it has been argued that the extension of basic telephone services beyond areas that are profitable, notably into rural and poorer areas, is best conducted by a monopoly that will cross-subsidize unprofitable rural and remote services from profitable urban and business services.

Although the point has become controversial, for years regulators and scholars argued that even in the United States, the achievement of universal service was best conducted by a private monopoly under close government regulation.

However, until recently, most experts held that in many developing countries, the state was best able to provide the financial and operational resources required to pursue universal or at least extended service.

In many developing countries, perhaps most, there have been strong cultural and legal tendencies toward monopoly structures dominated by the state. There is a tendency in many countries toward seeing state monopoly, particularly in basic infrastructure activity, as expected, whereas in the United Kingdom and the United States, there has been a traditional distrust of direct government economic activity and a culturally based sense that most activity should stay with the private sector.

Unlike the United States, many countries lack an antimonopoly, antitrust legal tradition. In many countries, even those that the United States has had long ties with, such as those in Latin America, there is a tendency to distrust private ownership, particularly in the area of infrastructure. This tendency is now changing but has deep historical and cultural roots.

Correspondingly, many political groups in Bangladesh and elsewhere in developing countries question the morality of selling assets created by public fees, taxes, and contributions. There is a sense that the public patrimony achieved through public resources should not be given to private parties for private profit.

Example of telecommunication monopolies

In a number of countries, the history of the telecommunication offers examples of both success and failure. The national government monopolies on telecommunication did largely succeed in consolidating and expanding services. In Brazil, for example, Telebrás, the government telecommunications holding company (which includes state-level operating companies and the national long-distance and data company), was seen as very successful from the 1960s through the early 1980s.

It expanded rural and residential service, so that nearly all villages had at least one phone, and created new data and business services in major urban areas. Its expansion was largely financed with internal savings and cross-subsidies.

Middle of the road approach

A number of developing countries that have not yet privatized their telecommunications operators, and who may well not do so, are still adapting some of these steps of liberalization to address specific problems. In particular, quite a few countries are opening terminal markets, permitting private competition in value-added and cellular services, and permitting some facilities-based private systems.

Return towards monopoly

In most developing countries, even those such as Mexico that has privatized the telecommunications operating company, monopoly in long distance is still considered likely in the near future. There are at least two reasons. For nearly all countries, cross-subsidy between long-distance and local service is seen as a key tool for expanding the number of basic lines available.

Second, in those countries that do privatize, a guaranteed monopoly on long-distance service for a certain number of years has often been an incentive for strategic investors to purchase large groups of stock with a reassurance that they can recoup their investment from long-distance (and business service) revenues. This trade-off can be observed in privatization contracts in Jamaica, Mexico, and Venezuela, among others.

Developing countries’ perception about privitisation

Third World countries are often considering privatization as a means of acquiring additional investment for the telecommunications system. However, as we see, that requires carefully structuring the privatization process and then monitoring the outcome. As the experience of the Philippines shows, an unregulated private monopoly cannot be counted on to do much investment toward achieving development goals, beyond that which is profitable.

Privatization and Monopoly(无忧发表网http://www.51fabiaowang.com/

A number of studies of various privatization processes of telecommunication companies in developing countries have observed that the role of regulation and the structuring of regulatory authorities has been neglected. Whereas the United States has pursued and promoted the strategy of deregulation, most other countries have actually re-regulated or reformed regulation, often creating formal regulatory authorities to replace political or ministerial discretion over government operations.

In particular, it seems that deregulation has only really been pursued in advanced industrial systems, where reliance on market competition instead of regulation builds on existing infrastructure development.

In the United States, United Kingdom, and New Zealand, which have introduced the most widespread liberalization and reliance on market forces, what might be effectively called deregulation, universal service has been long achieved and the initial logic of natural monopoly no longer seems as strong. Such complete liberalization requires potential for costeffective competition, requires effective competitors, and works best to develop advanced business services.


In contrast, re-regulation, or, in most cases, the new development of effective regulation separate from political decision making seems to have been imperative in most restructuring. Researchers argued that, at least in Latin America, experience shows that regulatory structures need to be constructed before privatization is begun.

The core of the argument for strong regulation revolves around the continuing need for nearly all developing countries, except perhaps those of East Asia, to strongly pursue rapid expansion of service into rural and residential areas. The economic and social needs are such that expansion is very pressing, as discussed earlier, and the near-future profitability of such investment is not great enough to automatically lead a private firm to make such investments.

For systems still trying to achieve universal service, regulation seems to be required to ensure that a private or partially private operator reinvests not only in profitable business and long-distance services but also in extending residential and rural service. Regulation may also be required to get adequate technological upgrading by partners in privatized companies.

This is particularly true for private monopolies, and it seems, from most of the current developing country telecommunication privatizations, that monopolies are still being granted in most cases, often as an incentive for further investment, as in Mexico. For systems permitting private monopoly, regulation is needed to set fair price and profit levels (like U.S. rate of return or price cap rate regulation).

However, if telecommunications systems plan on permitting competition in some areas, such as cellular telephony, value-added services, or digital overlay networks, then regulation may be required to get private competitors to contribute toward investment in expanding the basic system.


There are a variety of reasons why many countries resist privatization, as already noted. Some of them have instead pursued a mixed, limited liberalization, opening only those areas seen as most crucial or pressured.

Corporatization frequently represents a political compromise between those demanding reform or restructuring of telecommunications administrations and those who wish to preserve the state sector. In some countries, like Brazil, sectors of both the left and the military still see telecommunications as strategic in the sense of national security, requiring state control.

In other countries, many argue against transferring public assets to the private sector and/or losing the potential profit that telecommunications brings the state. Frequently, too, both technocrats and labor unions are loathe to risk loss of jobs and decision-making control potential in the sale or transfer of state assets in privatization.

One of the problems in corporatization is whether government agencies or ministries and large public sector enterprises are susceptible to such thoroughgoing change in labor, operations, technical, and managerial aspects as efficiency and financial viability might require. Civil servants do not necessarily become market-oriented managers, labor unions do not automatically become more efficient in work practices, and politicians do not stop seeing the public enterprise as a zone of control and patronage.

Research highlights

One of the hallmarks of globalization in the contemporary era is the ever closer integration of national telecommunication markets. Over the last half century, as barriers to international investment have gradually evaporated, capital mobility has accelerated to heights unseen since the days before World War I in telecommunication sector.

Few informed observers doubt that key marketds and actors have been greatly affected as a result. Indeed, critical explorations of the political implications of telecommunication globalization have become a staple. Most analysts agree that with the phenomenal expansion of cross-border capital flows, the traditional relationship between states and markets has been fundamentally altered.

But how, precisely? At issue is the role of the state in the management of telecommunication. What does globalization mean for the convention of national market sovereignty? On this crucial question, not surprisingly, views differ. Where some scholars still see a potent role for government, ostensibly the ultimate locus of legitimate rule, others discern only constraint on political authority and a transfer of power to private actors. Who now governs states or markets? To say the least, consensus remains elusive.

The major issue which emerges after the globalization is, still there are some countries that prefer to run their telecommunication sector in monopoly tendency, because monopoly is very preferable for their market situation and stances. That is the basic topic around which our research is circulating.

In part, disagreement is only natural: an unavoidable consequence of the sheer speed of recent change as well as the inherent limitations of available information. To a large extent, however, the problem lies not in the answers that are offered but in the question: how the core problematique itself has been framed. The analytical spotlight tends to be cast centrally on the phenomenon of telecommunication monopoly. Such a narrow focus manages simultaneously both to understate and to overstate the essence of today's challenge to the state.

The challenge is understated because a focus on telecommunication change has really been far more extensive, involving all the standard functions of market--not just market's role as a private investment vehicle but also its use as a unit of account and, most critically, in a developing countries--thus penetrating to the very nub of what is conventionally meant by domestic market sovereignty.

At the same time, the problem is overstated because a focus on private sector, stressing the preferences of natinal property users, highlights only one side of the market: the demand side. That too ignores an important part of the story, namely supply, which even in an increasingly globalized world remains largely the privilege of the state.

Governments are still the principal source of the facilitation for the monopoly market that is so easily manageable in samll developing countries. Hence the state, though constrained, still retains a considerable influence of its own in the governance of telecommuncaiton monopoly in small developing countries.


There does seem to be a certain convergence between a numbers of countries on a number of general steps in what is best termed liberalization of telecommunications. To meet the demands of both national and multinational business actors working within a world economy, certain restructuring steps are becoming widespread, such as opening rules on terminal equipment, allowing more use of private networks on leased lines, permitting private user ownership of certain kinds of private facilities like permitting private companies to enter or compete in cellular telephony, and permitting competition in some value-added services. Even countries with strict national monopolies and import substitution policies, such as Brazil, are opening these areas.

One noticeable trend is that many countries are in fact limiting the degree of liberalization well short of privatization. One of the dominant patterns is corporatizing the monopolies into a more market-oriented enterprise, while liberalizing competition in various areas. In some countries, this might be seen as a transition to privatization, and, in others, an alternative response to the same pressures while meeting counter-pressures to keep telecommunication assets under public control.

Privatization of the primary telecommunications operator does not seem quite as pervasive and, indeed, is being specifically rejected in some countries, such as Costa Rica and Uruguay. Examples of both success and failure are appearing in privatization efforts. That is to say, some countries are now having second thoughts and are unhappy with some of the outcomes, as in Argentina.

That is principally due to lack of clarity in the initial goals of privatization, the haste or care with which privatization was pursued, the fit between goals and the form and mechanism of privatization, and the degree to which a regulatory mechanism was created or refined that could ensure that goals were met.

In particular, although initial financial goals seem to have been met in most privatizations, the desire to ensure the continued expansion of basic services, particularly into less profitable residential or rural areas, has not been met in several cases, such as Jamaica and Argentina.

The need for great care in the elaboration and enforcement of regulations, particularly in the structure of the regulatory mechanism, seems the clearest result of this brief survey of trends. Some countries that are liberalizing have not created regulatory mechanisms that can handle and guide independent, private operators, even in specific sectors, such as cellular telephony.

For example, the process of giving licenses for private cellular services in Brazil has been delayed, costly, and politically charged. More dramatically, some countries that have moved further to privatization of the main operating company have not clarified their goals ahead of time and created regulatory mechanisms adequate to ensure that those goals are pursued.

Developing countries trend of privatization

The trend in privatization, especially in developing countries, has occurred for various reasons. The state has been providing telecommunication services in developing countries. Because telecommunications has functioned as a state monopoly, there has been little regulation con cerning telecommunications in these countries.

In developing countries, there has been a lack of investment in the telecommunications infrastructure because higher priority was given to other economic sectors (e.g., electricity and transportation).

As a result, the telecommunications infrastructure that was established had outdated equipment and provided poor service. The growth of telecommunications had occurred more in urban areas than in rural areas because the demand for communication was greater in urban areas where there are businesses and elite classes.

In the urban areas, the high demand for basic service has resulted in the overuse of the existing equipment. Also, the government, in most cases, has been unable to satisfy the demands for basic service in rural areas as well as provide enhanced services in urban areas.

The possibility of investment leading to economic growth was discussed in the report in 1984. The commission examined the link between telecommunications and economic growth. It seems that countries with strong economies also had higher telephone penetration for their respective population.

Because telecommunications is a sound investment for the enhancement of the economy, most developing countries started looking for funding for both basic and enhanced services. With globalization, there is a perceived need to be able to compete, which also calls for improved telecommunications. However, in order to invest in telecommunications, these countries needed funds that most of them lacked due to a rising debt.

As a result, many of these countries turned elsewhere to obtain the financial resources they needed to improve the telecommunications infrastructure. Organizations like the World Bank are willing to provide loans; however, they want the countries to restructure their telecommunications sector.

The World Bank feels restructuring would make the telecommunications infrastructure operate more efficiently. Essentially, the Bank recommends that the government should reduce its control on the telecommunications sector and allow it to be more autonomous and commercial. The Bank has also encouraged private investors to enter these markets.

As mentioned, most of the developing countries have a rising debt problem; this is one of the main reasons that many developing countries decide to liberalize certain sectors that were under government supervision. In Mexico, the state-owned telecommunications (Telmex) was privatized in 1989.

A consortium consisting of Grupo Carso, Southwestern Bell, and France Telecom purchased 20.4% of Telmex. In February 1992, Telmex made a net profit of $2.26 billion U.S. for fiscal year 1991. In the process of privatization, it is necessary to note that the government does decide the extent to which a foreign firm participates in the telecommunications sector.

Possible impacts of foreign investment in developing countries

In discussing these international investments, it is difficult to actually determine their impact in host countries because in some cases the contracts have recently been drawn or the services have just started operating. One country where the telephone lines have increased and profits for Southwestern Bell have gone up is Mexico.

As it has been stated before, there was an increase of 12.5% in the number of lines being provided. US West's participation in Westel, the Hungarian cellular provider, has 11,000 subscribers. This suggests that increase in services available for individuals will definitely promote development through increased business contacts.

Within the residential and business sectors and the rural and urban sectors, there is going to be more growth in the business sector and in urban areas as opposed to the residential sector and rural areas. In Bell Atlantic's and NYNEX's responses to the questionnaires, these companies saw growth in these areas because telecommunication services know there is definite demand for services in the business sector and in urban areas.

Researcher reiterated that development will initially occur in urban areas and in business sectors because of high demand. Eventually, he sees telecommunications services diffusing to residential use and to rural areas.

In terms of the development of basic service and cellular service, the RBOCs are willing to provide either basic or cellular service depending on the license they are given. Although basic service is provided, it is more likely that cellular service will be provided because it is cheaper and easier to implement. Finally, the extensive role the RBOC can play in any country is dependent on the regulation in the host country.

It is important for the host country to make sure it stays in control to prevent domination from a TNC. In most of the international investment cases discussed, the RBOCs are most often partners with the local PTT. Furthermore, they are in many markets for only a specific amount of time in order to provide the service that should benefit the host country.

As for the RBOCs, their international investments will certainly increase their company's corporate profits. Ameritech received a profit of $147 million when it sold 31% of New Zealand Telecom and Southwestern Bell's investment in Mexico doubled to a value of $2.5 billion. Although all companies admit that they invest internationally to increase their assets, no RBOC states how much their corporate profits should increase.

Reason to oppose monopoly

Historically, the performance of most state-owned enterprises (SOEs) has been disappointing. As a result, governments around the world are privatizing their SOEs at a feverish pace. Between 1980 and 1991, more than 6,800 sales and liquidations of state-owned firms have taken place. By the early 1990s, over eighty countries were participating in "some significant form of privatization."

Today, many governments are aggressively seeking to privatize virtually all of their SOEs, including public utilities and enterprises historically classified as "strategic" industries. In the past, governments throughout the world have been reluctant to privatize these industries due to their close relation to national security and government control of their nationals.


However, today privatization has become so widely accepted by most countries that it is no longer tied to the political arena. Instead, the developed world has specifically focused on the strategic issues involved, namely pricing, regulation, and timing of privatization.

Likewise, the developing world has been an active participant in the privatization process, albeit to a more limited extent. Slightly more than 2,000, or approximately thirty percent of the 6,800 privatizations have occurred in developing countries, and the size of the SOE sector in a number of developing countries has been substantially reduced. Between 1987 and 1992, foreign direct investment rose by nearly 29 billion dollars to a projected 38 billion dollars.

Much of this rapid growth in foreign direct investment can be attributed to the expansion of privatization programs over this same period. The number of annual privatizations rose from twenty-six in 1988 to 416 in 1992, totalling approximately 870 privatizations.

Moreover, over the same period of time, privatization revenues increased from 2.6 billion dollars to 23 billion dollars. Finally, while many of the SOEs privatized in developing countries were small or medium in size, recent years have witnessed an increase in the number of large SOEs being sold.

Consequently, although the SOE's pace of privatization lags behind that of the rest of the world, developing countries aggressively have begun to re-assess the potential of the private sector to take a more active role in financing and providing public services and physical infrastructure. One particular sector of the infrastructure in which privatization has been pursued ardently is the area of telecommunications services.

Traditionally, telecommunications services have been provided exclusively by government-owned and operated entities under monopolistic market structures in the name of national security. However, like most SOEs, the telecommunications providers have had difficulty mobilizing significant amounts of capital for the telecommunications network.

They also have a poor record of responding to the evolving and varying needs of businesses and households.[19] Thus, policy-makers of developing countries, realizing that a modern telecommunications infrastructure is essential for attracting investment which will lead to economic development, have begun to privatize their telecommunications sector.

While the privatization of telecommunications services is a global phenomena, each country in the developing world has approached the process differently and has been driven by a combination of varied motives. In fact, use of the term "privatization" can be misleading because there are various methods in which a country can open its telecommunications market to competition.

For example, in some Latin American countries such as Argentina and Mexico, the process has been characterized by efforts to privatize SOEs at an accelerated pace while limiting competitive entry into basic service sectors.

In Mexico, the process has been relatively structured despite the pace in that it first "corporatized," then "decentralized," and finally "privatized" its state owned telecom. Argentina and Mexico were motivated by the need to accumulate significant amounts of foreign investment to combat daunting deficit problems.

Monopoly Power of telecommunication

A telecommunication sector has market power if it is profitably able to charge a price above that which would prevail under competition where price equals marginal cost. This firm--monopolistic competitors, oligopolistic competitors, and monopolists--share a common characteristic, namely that each type of firm recognizes that its output decisions have a noticeable influence on price. That is, each type of firm can increase the quantity of output it sells under given demand conditions only by reducing its price.

Theories on competitive and noncompetitive markets hold that the less direct competition a firm faces, the greater its monopoly power: that is, the ability to set price above marginal cost. Thus, monopoly power (and hence prices and profits) should be higher in industries with substantial entry barriers that reduce actual and potential competition.

In addition to concentration, capital and establishment size can act as barriers to entry. The raising of funds becomes progressively more difficult as capital requirements for entry increase; thus, capital is a barrier to the extent that large amounts may be needed for entry.

It is expected that the level of capital requirements, as measured by the capital-output ratio, will be positively related to the level of industry profit rates. Average establishment size is a conventional measure of a barrier to entry to the extent that it restrains capital flows into high-profit industries.

Also, establishment size is often used to represent economies of scale that permit the seller to rise pace to some extent without attracting new rivals. Thus, if size does indicate returns to scale, the effect on profit rates should be positive.

Growth in the producers pace index--inflation--is also expected to result in higher profits in that paces will rise relative to costs. Many authors have pointed out that even though monopoly power may lead to excess profits, it does not ensure that all the profits will be captured by the monopolist. Profits can be bargained away to labor unions. Therefore, it is expected that industries with higher unionization will have lower profits. That is, percent of unionization should be negatively related to industry profit rates.

Power of monopoly

Because private companies' elasticity of supply grew as their producing capacity grew and as tariffs declined, it is expected that the effect of imports on profits increased over time. In addition, the average annual level of import penetration for developing countries production increased substantially over the period.

In order to test the hypothesis that the effect of telecommunication on monopoly power increased over time in developing countries, the time period is divided into two parts. The first period, 1961 through 1972, includes the complete implementation of the Kennedy tariff round (1968-1972), which led to a substantial increase in privitization penetration.

Thus, the second period, 1973 through 1984, includes the results of the Kennedy round implementation as well as the Tokyo round and over half of its implementation period (1980-1987). The procedure is to estimate the profit model with a dummy specification representing the time period 1973 to 1984.

The impacts of unionization, concentration, and inflation on profits were not significantly different between the time periods. Demand growth and economies of scale had a larger impact on profits in the latter period and capital intensity had a larger impact on profits in the first period. Thus, the restraint on profits provided by monopoly has increased over the 1961 to 1984 period. In general, monopoly power appears to be increasing over the period in conjunction with lower levels of imports.

Reason to acquire monopoly in small economies

In the past two decades there has been a great deal of interest in the telecommunication monopoly or 'Coase conjecture' in developing countries. In a pioneering article Coase (1972) asserts that a telecommunication monopolist may be forced to price at marginal cost if its output is sold. In essense, Coase argues that a telecommunication monopolist would be forced to act as a perfectly competitive firm due to buyers' rational expectations about future output decisions (price declines).

Intuitively, if buyers in durable goods industries such as the telecommunication industry are rational, they will recognize that a selling firm has an incentive to flood the market in future periods since the loss in value of the existing stock of durable products is borne by buyers and not the firm.

Buyers will rationally take into account the firm's future price cutting behavior when purchasing durable units in the current period. This reasoning led Coase to conjecture that with constant marginal production costs and an infinitely durable services a selling monopolist would be forced to price at marginal cost and that all sales would take place in the first period unless the firm could make a commitment to buyers to not flood the market in future periods.

This raises an interesting question since previous researchers, such as Butz (1990), argue that telecommunication monopolists typically do not act in such a competitive fashion. If selling firms do not act as competitors it suggests the firm's commitment problem with buyers is mitigated in some fashion, either directly by the firm's own actions, such as contracts or guarantees, or by technological or market characteristics.

Researchers show that it is possible to mitigate the firm's problem through the use of costlessly-enforced installment contracts or best-price guarantees. Investigators argue that the firm can decrease its commitment problem by decreasing the durability of the services. Similarly, researcher demonstrate that due to this commitment problem telecommunication inductry have an incentive to increase the speed of new product development.

However, all of these studies assume that the firm's singular goal is the maximization of profits. This has been criticized by a variety of authors, particularly when the management and ownership of the firm are separated. In fact, recent economic/business literature has argued that in many cases owners may give their managers incentives other than profit maximization.

This suggests that a profit maximizing owner of a telecommunication monopoly may provide its managers and economies with incentive schemes that are not based exclusively on profit maximization in an attempt to mitigate the firm's commitment problem with buyers. By contracting with managers in such a fashion owners may be able to credibly commit to their current customers that they will not flood the market in later periods.

It also helps explain why we would not expect a manager's or executive's compensation contract to rely exclusively on reported profits in durable goods industries. The model confirms that a service's durability is an important determinant of managerial incentives. This may shed some light on the debate revolving around executive compensation, incentives, and firm performance. In particular, it may provide at least a partial answer to the empirical finding that sales revenue is sometimes negatively correlated with executive compensation.


For the analysis a simple 'agency' framework is used in which a profit maximizing owner (principal) provides incentives to a manager (agent) who then chooses durable output levels over a two-period horizon. The model shows that under these circumstances an owner will optimally pull his or her manager away from pure proft maximizing behavior by penalizing seemingly profitable sales in order to minimize the firm's commitment problem with buyers.

Managers, in effect, are 'overcompensated' for profits in telecommunication industries and are induced to act as if they own (rent) all of the production. This ensures that managers will not act too 'aggressively' by flooding the market, which in turn mitigates the firm's commitment problem with buyers and, consequently, increases the owner's profits.

In fact, the analysis demonstrates that owners can earn the maximum profit possible (renter's profit) even when restricted to the use of linear incentive contracts as long as they are free to set different incentives in each period. Additionally, the analysis suggests that even in cases where owners must set the same incentives in each period they can increase their profits by twisting their executives away from profit maximization.


Aims and Objectives

It is a fact that many developing countries still find it difficult to attain the gains through privatization plan that one would expect. In a number of countries, the slow pace of the privatization may simply be the result of a resources which has not been genuinely committed to capitalist policies in the past, and therefore lacks credibility with buyers and investors.

A related issue in these countries is that there is no competitive private sector into which these enterprises can be privatized. Furthermore, establishing a competitive private sector takes a wealth of time and institutional development in the form of a legal framework, contractual enforcement, and a reasonable capital market.

So for such type of economies it is better to regulate them under monopoly control, because it will help the investor to gain his investment back in early years. It would also facilitate the customers to get the best service form single supplier. Although it is fact that competition in the market raise the competitive service for the consumer, but for the market like small developing countries it is fruitless to flourish the competition and to invite the private investors to get their investment stuck in such deadlock stances.

The major objectives of our research are to highlight the major obstacles for the private investors in small developing countries. We have also discussed the reason of selecting monopoly for small developing countries.


Research methodology

The first thing to understand about telecommunication monopoly, and why people like them, is that they are structured business experiences. This means that a telecommunication player must do this thing: provide an orderly environment and make sure that the environment generates profit.

Mind you, just knowing the effective response of the research we have to target the main player of the market. Each of these players requires judgment and finesse. But the payoff that comes from successfully applying them is what keeps us all trying.

Once a questioner becomes well established—like Monopoly or that great job of detective work, Clue—it's very difficult for another with a similar theme to succeed. And if a question endures for a generation, it can probably live forever. We have to focus the following things before designing the research questioner.

Make the question simple and unambiguous

Providing the orderly environment required by a participant might sound like a straightforward task, but in fact it has to be done with real creativity. By definition, a question is interactive; it's not something you experience passively like scenes in a movie or words on the pages of a book. Thanks to that interactivity, a question can be far more engaging.

People love to use their imaginations and concoct their own fantasies. But people can also find a question bewildering if they aren't given a sound structure and clear guidance. Then their imaginations will be stifled, and the experience they're seeking will never have the chance to unfold. The same is true, of course, in business. People engage most and their talents flourish best when job responsibilities, business objectives, and evaluation criteria are clearly understood.

In a question setting, structure and guidance come mainly from rules; a question will fail miserably if it doesn't have clear rules that avoid controversy. This clarity, after all, is the essence of how questions improve on the real world, which is very inconsistent and unpredictable—and therefore frustrating.


Don't frustrate the casual participant(无忧发表网http://www.51fabiaowang.com/

The problem with the rule to keep things simple is that designers can't resist breaking it by trying to design something impressive and innovative. To use an analogy from publishing, they aim for literature in a market accustomed to pulp fiction; they want to create masterpieces. That impulse, if left unchecked, leads to failure.

There are simply too few avid question players in this country. Their numbers continue to shrink because of the wealth of entertainment options available today compared with 20 years ago. If a question is to last more than a few months after its launch, it must appeal to a critical mass of casual industry players, people who will rapidly comprehend and enjoy playing it.

Complicated rules and subtle nuances make a question difficult to grasp and may make players feel stupid instead of empowered and enlightened.

Establish a rhythm

Just as important as effective rules is an intuitive sense of rhythm in a question. One aspect of rhythm comes from the number of participant involved. Most successful question are designed for three to six participants, but the ideal number is usually four because everyone's turn arrives often enough to maintain interest.

It's probably a good guideline for research, too, to give everyone a turn, early and often, and even better if the “turns” involve rotating assignments. Many companies find it useful for their rank and file to experience the pressures and rewards of the jobs of their colleagues.

The rhythm of a good research method, moreover, comes from a clear beginning, middle, and end. In a well-structured question, participant can feel the shift occurring from one of these segments to the next. When a question begins, the mood is tentative as participant start to position themselves in a hierarchy. Monopoly's beginning phase, for example, focuses on contending with the luck of the throw and on buying indiscriminately.

As the opening phase evolves, players grow aware of who's in the lead, who's in the pack, and who's behind. As the question shifts to its middle segment, question becomes more intense. Participant are jockeying for a clear advantage and trying to overcome any bad luck suffered in the opening phase.

At this point, experienced Monopoly players become highly focused on acquiring at least one significant color group and rapidly developing it. Now the question becomes a race for survival by the trailing players while the leader hopes the odds will continue in his or her favor. Inevitably, one winner emerges and takes all the money.

Monopoly's race to the financial finish is akin to other question where a token reaches an end space (Parcheesi) or a specified point total is accumulated (canasta). In the best questions, the end comes with a bang, not a whimper. If a question paces itself effectively, people will instinctively know which phase they are in. If the pace doesn't build, it's not much of a question. It's more like a lesson.


Focus on what's happening in the market

So far, the principles have been outlined have focused on providing structure. But structure isn't everything. A question with a perfect set of rules and a sense of building throughout its phases won't be played again if it doesn't also entertain. Participants are not going to come back unless they experience pleasurable emotions (which, in the context of a question at least, might even mean stress and fear).

The second challenge for research designers is to maximize the efficiency value. During a questions, in addition to the actual question, people are affected by and participating in what's happening off the board.

That's a function not so much of the question's components but of how the players interact because of them. A well-designed question makes people feel better afterward - and for many players, that's due to the larger social experience, of which the question is only the core activity.

A striking feature of many successful researches is that they are based on ones that a lot of people have known for a long time. Clearly, the important thing for a research is not that it offer innovative question but that it make the research accessible and entertaining to the maximum number of people.


Data analysis

Since the Telecommunications Act of 1996 was passed by Congress with the intention of both deregulating the telephone business and creating competition. Many have come to believe that the technology industry requires strict governmental policing of allegedly anti-competitive behavior.

But today's telecommunication companies may find that the special rules about to be applied in the developing countries a precedent that can be selectively employed as they achieve similar spectacular success in the control of monopoly. The beast some of them have helped unleash--one that even regards corporate breakup as reasonable--may look less friendly then.

The Telecommunication technologies are advancing in ways no one can predict, assuring new sets of winners in the future.

Whatever economists may not understand about dynamic business strategies--including the alleged evils of "tying" and giving away free products to build market share and sink competitors--they are a part of a mix that serves consumers handsomely.

Any attempt to regulate or break up subject high technology generally to the auspices of antitrust (a) will target "threats" better addressed by the marketplace; and (b) will prospectively freeze this vibrant, innovative sector into a timid stance painfully aware of the selective nature of antitrust aggression. A sector like telecommunication may grow large under capitalism, but never as large as the capital markets and the opposing business interests who desire to crush it. Investors in small developing countries always find other ventures to fund the market-policing of "monopoly" control.



Swept along by the wave of deregulation and liberalization that is dramatically changing telecommunication sectors in the industrialized countries, Third World countries are currently engaged in the widespread reform and restructuring of their telecommunication sectors. These reforms have involved various degrees of corporatization, privatization, or liberalization.

This movement is in contrast to the historical trend, which, in the past few decades, was away from commercial provision of telecommunications and toward governmental control. The reason was a perception that private telecommunication companies exploited their monopoly position by providing inadequate service at excessive prices and ignored important social concerns.

Researchers argued that "if telecommunications services are to be successfully moved back into a more market-oriented mode of operation that is also stable and viable, the problems that led to nationalization in the first place must be addressed".

To do so, effective and credible regulatory mechanisms will have to be developed to balance commercial interests against political or social concerns, "otherwise reform and restructuring of the telecommunications sector will not be stable or sustainable".

Clearly there is no one correct blueprint for such a mechanism and each developing country must find its own solution depending on its political dynamics, the nature of its legal system, and the independence of the judiciary and the regulatory agency. In other words, regulatory systems are specific to a combination of institutional constraints that may vary over time and across countries.

These systems are highly sensitive to changes in institutional constraints, such as those imposed by political actors, the nature of the property rights regime, or the regulatory structure, which together determine the margins at which organization within the regulatory system operate. Third World regulatory systems will fail if the institutional constraints define a set of political and economic payoffs that do not encourage efficient and balanced development of the sector.

Therefore, reform of telecommunications in developing countries must include ways to restructure the institutional rules so as to redirect incentives, both political and economic, in a manner that will encourage organizations to engage in regulatory and productive activities that lead to the efficient development of the sector.


For instance, although privatization may eliminate the management and the organizational shortcomings of public enterprises, the potential for regulatory failure can arise because firms "capture" regulatory agencies influencing and controlling the regulatory process.

Capture aside, regulatory failure may be caused by information asymmetry between regulators and firms, unclear tariff formulas, weak or no conflict resolution mechanisms, and limited institutional capacity to enforce regulatory rules. In short, trading a public monopolist for its private equivalent is not exactly guaranteed to enhance efficiency. Nor does it constitute sufficient conditions for improving domestic welfare.

Regulatory systems will be the key mechanisms to bridge the divide between public objectives and private incentives for the development of telecommunications in Third World countries. Countries should seriously consider the introduction of regulation and the institution of appropriate regulatory bodies prior to reform. What should be done will vary according to the objectives and nature of reform, the development of market forces, and the political climate of the country. What can be done will further constrained by political, legal, and safeguarding institutions?



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