Government Regulation

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This paper has five parts: an introduction, a description of the industry and its key members, a description of public policies to date, and a prescription for public policy going forward. The second and third parts are revisions of the papers you submitted for Assignments 3 and 4.

The modern voice communication industry can trace its early roots in 1876 from Alexander Graham Bell’s telephone, the first ever device that enabled people to verbally communicate over incredible amounts of land. The industry has developed from devices like the early telephone to be a luxury, to what is today is an absolute necessity for the average person. Mobile phones have exploded and have begun to make the landline in some countries obsolete. “Smartphones” have become the common term for mobile phones with specific extra feature offerings such as text-based web browsing and a QWERTY keyboard. Because the smartphone is still relatively young and constantly being innovated, there is no clear consensus on how to define what phone is a smartphone or not. The smartphone industry will be extremely significant as to how the entire voice communication industry’s landscape turns out. So, I will be evaluating the current structure of the smartphone market in the voice communication industry in the United States by analyzing which products should be included, the relevant geographic market, market structure, seller concentration, and barriers to entry. After developing an industry-wide analysis, I will look at the major public policies that have been influential, and then offer a prescription for public policy going forward. Smartphone development has grown so rapidly over the past ten years that it has become difficult in deciding which of these cutting-edge phones from only a few years ago is still considered a smartphone. Additionally, cell-phone manufacturers still produce cell phones without many of the extra features such as a QWERTY keyboard or built-in camera. Even though there are many definitions of the various categories of mobile devices, I will separate them into three commonly used categories: “dumb-phones”, “feature-phones”, and “smartphones”. Many times the dumb-phone and feature phone can be used synonymously, but I will define dumb-phone has a cell-phone with only phone call and texting capabilities. Many of these phones can be purchased pre-paid, like the LG Revere or Motorola A455-Rival. A feature phone however, is seen more as a mid-range device.  Smartphones and feature phones have many overlapping characteristics, but I will define a feature phone as a mobile device without an advanced API (application programming interface), and typically highlighting one or two functions very well like music storage (Samsung Juke) or high quality photos (Nokia 808). It is easy today to dismiss the feature phone as becoming obsolete, but in 2011, still 37% of the market share was feature phones and global smartphone penetration is still only at 27%. Smartphones will be defined as mobile devices with the following features: telephone calls, operation system, apps, web access, QWERTY keyboard, and messaging. All of these features have been a progression, as it was only recently that open-source apps have become a staple. It would not be surprising if within a couple years touch screen will be a basic definition of a smartphone as well. Even though this is our current definition of a smartphone, we must consider other categories that will be considered part of the relevant product market. In order to determine which products are in the relevant market for smartphones, I will use cross product elasticity of demand. Cross product elasticity of demand is the change in demand for product due to a change in the price of another product. We can see the how large of a change in the price of a smartphone will change the demand of feature phones, for example, and if it is significant enough, then we must consider that product in the relevant market of...
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