Delp and Mayo issue research paper: “The Evolution of ‘Competition’: Lessons for 21st Century Telecommunications Policy” and accompanying Economic Policy Vignette

Amanda Delp and John Mayo chronicle the evolution of the concept of “competition” in economics and also examine how competition has been defined in the telecommunications arena.

Their research finds that the academic literature on competition hits an important inflection point in the mid-20th century with the development of “workable competition,” a term equated to “effective competition.” It finds that while the concept of “effective competition” is central to policy formation at the FCC, the Commission’s own applications of “effective competition” are inconsistently applied. Given the centrality of this concept and its inconsistent applications to date, the authors draw upon seminal contributions to the development of the notion of “effective competition” to proffer a modern definition suitable for application in 21st century markets. The authors suggest that a market can be said to be “effectively competitive” when firms exhibit overt rivalry in their quest for consumer patronage; consumers have choices among vendors, readily demonstrate their ability to change vendors, and vendors have the ability and propensity to expand output to satisfy consumer demands; rivalry among vendors manifests itself in desirable economic performance metrics, including price, output, quality, investment, and innovation; and no clearly indicated and cost-effective policy change can improve upon prevailing economic performance in the market at issue.

The proposed definition is grounded in measurable indicators about which consumers care and is largely congruent with existing data collection efforts. It does not offer a bright-line test of performance. It creates the possibility that assessments of market competition will not vacillate depending on the ideological moods of Congress, regulators, or the public.