Welfare Effects of Spectrum Management Regimes

We build a model where consumers have preferences, over a range of varieties, for communications devices and device qualities. Devices use radio spectrum and are produced and sold in a competitive device market. In such a model, the choice on the spectrum management regime greatly affects market outcomes and consumer welfare. The choice on the spectrum management regime effectively determines the final number of firms in the market and the electromagnetic noise levels firms become subject to when deciding on the information transmission capabilities of their devices. We simulate such a model over a wide range of model parameters. We find that the commons regime where the access to and the use of spectrum is not restricted to license holders creates consumer welfare for a wider and more reasonable model parameters than the licensing regime where the access to and the use of spectrum is granted to predetermined number of licensees.