The Federal Communications Commission (FCC) Is Trying to Decide How

question 12

Essay

The Federal Communications Commission (FCC) is trying to decide how to allocate an unused part of the radio spectrum for personal communication services (PCS) which are advanced cellular communication services. The monthly demand for the service in a major city is given by Q = 1000 - 10P where Q is the number of subscribers (in thousands) and P is the monthly service price (in $). A typical firm can provide PCS service at the cost: MC = AC = $20 per subscriber per month.
(a) The FCC is considering licensing the exclusive right to use the spectrum to a single firm. What price should the firm set, and what is the resulting total number of subscribers? Suppose the FCC charges the firm to license the spectrum. What is the maximum monetary amount that the FCC could expect to receive for exclusive spectrum rights?
(b) An alternative FCC policy is to allow multiple firms to share the spectrum in order to promote competition in the PCS market. If competition among multiple firms approximates perfect competition, what will be the price and total number of subscribers?
(c) Would it be more efficient for the FCC to license the spectrum to a single firm or allow multiple firms to share the spectrum?

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