High prices for broadband, contestability, and Google Fiber

by on February 21, 2014 at 6:36 am in Economics, Uncategorized, Web/Tech | Permalink

Here is a potential new development:

Verizon is adding more antennas to its network, forming smaller wireless cells with stronger coverage and rolling out service on new segments of the wireless spectrum, the digital equivalent of opening new lanes for traffic. Sprint is introducing a service called Sprint Spark that increases access speeds if customers have devices that can use multiple wireless frequencies at once.

If pCell works as promised, Mr. Perlman’s technology could result in much bigger gains in wireless speeds. In traditional cellular networks, antennas placed around a city transmit wireless signals to all of the mobile devices within their area. As more people enter an area, they share the wireless network with everyone else there, resulting in slower speeds. Wireless carriers cannot simply solve the problem by putting antennas everywhere because their signals can be disrupted if they are too close together.

With a network of pCell antennas, someone with a mobile device will get access to the full wireless data speed in the area, regardless of how many other people are sharing that network, Mr. Perlman said.

There is also this:

The plan is to bring Google Fiber to 34 cities and see how that goes.

Here are various satellite video streaming services.

I do not feel I can judge the prospects for these developments.  The point, however, is this.  Improving connectivity is an extremely dynamic market sector.  A high mark-up on cable internet connectivity, as might be applied by say a Comcast monopolist, is also creating a “prize” for further innovation in the sector.  Admittedly one does not prefer to have this prize funded by deadweight loss (less broadband consumption) but virtually all prizes are funded by deadweight loss in some manner rather than by lump sum taxation.

When people claim “the current mark-up is too high,” that is an entirely reasonable stance.  But when you rewrite it as “the current innovation prize, funded out of deadweight loss” is too high, that reframing brings some clarity, some moderation, and I think also induces some more agnosticism about the costs of the current semi-monopoly.  For similar reasons I don’t worry about monopoly in the eBook market and the like and there the case for simply ignoring the problem is much stronger because the options and cheapness have exploded so radically and so quickly.

So I don’t see the current cable semi-monopoly as lasting that long.  And its current cost cannot be that much higher than the cost of sending a disc in the mail, otherwise the disc would be sent.  Alternatively, most communities have public libraries which offer pretty good and pretty free internet connections, including video streaming of course.  If the argument is simply “this prize, for future connectivity innovation, cannot be funded from deadweight loss because it means that in the meantime some poorer people will have to wait to get their discs in the mail and make too many trips to the public library”…well, I guess I’m not that impressed this is a major public policy problem.

The longer and more you regulate cable prices, the longer it will take this sector to reach a more competitive equilibrium.

By the way, dear reader, I am not clever enough to use Netflix streaming, as I find the TV menu confusing.  So I still get the discs in the mail.

Ray Lopez February 21, 2014 at 7:55 am

I am pleased that Prof TC recognizes that deadweight loss under the PQ curve is also the flip side of a reward for innovation to captures some of that monopoly rent. That’s why I favor stronger and better patent laws–it would break us out of the Great Stagnation.

As for this internet development, it could be because of the end of “Net Neutrality”. Maybe we’ll see less spam too if they charge by bits transmitted rather than a flat fee.

Just another MR Commentor February 21, 2014 at 8:06 am

While perhaps stronge patent law is the answer there’s no doubt that massive increases in immigration is what will actually cure what ailes us.

Age of Doubt February 21, 2014 at 8:11 am

You nailed it. We need a massive influx of able-bodied taxpayers.

Z February 21, 2014 at 9:28 am

Tyler,

I love your hands-off approach to regulating comments. Few sites do it this well. That said, allowing this dickhead to pollute your site is probably not wise. Even the libertarian paradise has some cops.

Phill February 21, 2014 at 11:20 am

S/he may be trolling but at least they’re not being rude. Considering how much racism squeaks by in here, your being highly selective in your objections.

Rahul February 22, 2014 at 12:33 am

I rarely agree with Z but +1 for that. He’s a pure troll this “Just another MR Commentor”

Chris S February 21, 2014 at 8:47 am

Seriously, more and stronger patent laws will improve innovation? (I left out “better” because I find it dubious that one can tell ex ante what is “better” in such a complex regime.)

In a time of patent trolls, patentability of “business process” under a tiny fig leaf of technical innovation – stated in highly technical terms that baffles the patent clerk with bullshit – and the observed fact that most gains to patent accrue to entities other than the innovators themselves?

Maybe I am myopically focused on the tech sector, and I see through the lens of software, where the capital costs of innovation are quite low.

Patent one-click ordering? Patent the hyperlink? C’mon.

On capital intensive side – drug discovery perhaps – I can see how patent protection allows investment with a potential to recover costs.

So, perhaps I am speaking out of both sides of my mouth.

Just another MR Commentor February 21, 2014 at 8:58 am

This post betrays a severe lack of knowledge of the current patent landscape. There are a lot of gains to be had by expanding the definition of intellectual property, expanding property rights always leads to new markets being formed. Weakening patent law by say not allowing business processes to be patented leaves money on the table and destroys value.

Chris S February 21, 2014 at 9:28 am

I’ll admit to not being a patent attorney, but let’s select a particular case or two to educate me.

How about the hyperlink, which as I understand has been in the courts for some time.

It is my assertion that a patent on something like the hyperlink would increase rents accruing to the patent holder (who may be different than the innovator), while limiting the ability for outsiders to innovate on top of that platform.

The key problem that I see is that innovation is never “done” and never takes place in a vacuum. Standing on the shoulders of giants and all that. Why can an arbitrary place in the stack be chosen as a special place where payments are due to someone?

Corporate Serf February 21, 2014 at 10:19 am

Why? Because patent attorneys got to make a living somehow.

Just another MR Commentor February 21, 2014 at 11:00 am

I guess the basic idea is that when we create intellectual property we create an asset and the corresponding markets for those assets develop. Developing markets is almost by definition how civilization advances. Sure there’s the trade-off you mention with innovation potentially being stifled but I think that the whole rentseeking aspect has been really overhyped – rentseekers are as rare as unicorns outside of government.

Expanding what can be patented expands what can be monetized. The patent holder may seem to be collecting “rents” but actually the royalties are income which allows the holder to fund further innovation. A large part of our current economic problems is due to technology advancing but we haven’t properly expanded what can be monetized – ideally this should be almost anything to eliminate grey areas.

jtf February 21, 2014 at 1:44 pm

“rentseekers are as rare as unicorns outside of government.”

I’m not sure how anyone with any knowledge of current events – even concerning recent attempts by entrenched players to undermine disruptive innovation in the field Tyler is referring to – could ever say that with a straight face.

Chris S February 21, 2014 at 2:14 pm

JAMRC – Not to get too metaphysical, but is all IP “created” or is some fraction of it “discovered”?

Back to the hyperlink… It seems inevitable that someone, somewhere, within +/- 1 year of the actual patenting of that concept, would have shown exactly the same concept.

Prior art? Self evident? Existing property of nature? Can you patent photosynthesis?

“Chicago-based firm called Helferich Patent Licensing LLC owns [the hyperlink] patent, which its founder Richard Helefrich filed for in 1997. So far nearly 100 companies have settled with HPL for the $750,000 licensing fee, meaning a patent that you’d think would be ludicrous has earned its owner at least $75 million, if not more.”

http://www.extremetech.com/computing/135267-can-you-patent-a-hyperlink-patent-trolls-sure-think-so

Sounds like rent seeking to me.

Steve Sailer February 22, 2014 at 5:24 am

Well played, sir!

Ray Lopez February 21, 2014 at 12:03 pm

@Chris S, @JAMRC – well said, I wish this thread could be expanded. Indeed JAMRC (“Jam-Ric”) says it very well, and a famous Peruvian economist by the name of Hernando de Soto (not the explorer) got famous by saying that only when property is monetized with formal title does it become valuable. The meme is penicillin: the story goes when Fleming refused to get a patent on it, no drug company would make it, since no profit, and only later did it take off when the government devoted public money to commercializing it. As for incentives in software, the famous Quicksort algorithm (see http://en.wikipedia.org/wiki/Quicksort, which forms the basis for all modern sorting algorithms and explains why CNTL-F works so well) was given away by Tony Hoare in 1960 (while visiting Moscow State U!) but arguably it would have been better if he got some sort of royalty, to encourage people to come up with clever algorithms that can be patented (of course this is revisionist history at work, since back in those days algorithms could not be patented). Instead, math inventions are deemed “discoveries” already preexisting (nonsense!) and thus only a Field Prize or fame, as in the case of Hoare, usually awaits you for a math formula invention (AT&T and IBM have patented a few math equations but it’s not the rule). Isn’t that wrong? Should these formulas be trade secret? As for “one click”: why is that not patentable? If you think one-click is trivial, why? Personally I don’t like it, it’s a step backward, as it gives me less control over the ordering process. So why should it not be patented? Hindsight is always 20-20. As for patent trolls, trust me, I work with industry and it’s not such a big deal. Analogy: doctors who blame the high cost of US medicine on malpractice insurance. Not really the whole story. This is not to say US patent laws are perfect, but we need better such laws. And if you think patents are bad, and innovation does not suffer due to lack of patents, your only logical defense is to say “we got this far with weak patents, so why not continue this path?” My answer: Great Stagnation requires a rethink. To get to the next level we need better patents, maybe a prize fund, and like TC alludes to in this thread we need monopoly rents and deadweight losses to give incentive to players to innovate.

Chris S February 21, 2014 at 2:19 pm

I do not argue that all patents are bad, but that patents in some – not all – cases slow innovation and convert latent consumer surplus into producer surplus with a conversion ratio less than one.

You say that math or algorithms should be patentable. Let’s think of something like calculus – is that an innovative, productive way to do something useful like calculate the area under a curve, or is it descriptive of a property existent in nature, for instance the orbits of planets.

If calculus were patented, would I need to pay a royalty to calculate the trajectory of a rocket?

Jon February 21, 2014 at 8:14 pm

Patents have nothing to do with the delay in manufacturing penicillin. There were many reasons. First it took a while for people to demonstrate that what worked in the Petri dish would actually work in a human body. Second, initially people did not know what the structure was they had to make. Finally, manufacturing it reliably and in quantities was a non trivial challenge.

See http://archive.mises.org/5216/patent-and-penicillin/ for more details.

If you still believe this poster, then you need to explain: Why do companies manufacture goods for which patents have expired? Why would anyone open a new iron mine, since they cannot extract monopoly rents for iron ore or many of the alloys currently in use?

Ray Lopez February 21, 2014 at 10:36 pm

@ Jon the Austrian – I’ve seen the literature in penicillin, and read a good book on it, so my facts are sound. As for this statement “If you still believe this poster, then you need to explain: Why do companies manufacture goods for which patents have expired?” clearly you make my case. You need patents to get to the next level in technology, not as a subsidy to create said technology. If something needs a subsidy to get done, I agree it should not get done. But that it not what patent law is about.

Jon February 22, 2014 at 8:51 am

Ray: Sorry for the typo of your name on my prior response (misplaced under my response instead of yours). But I should add that just because I chose an “Austrian” website, does not mean I am Austrian. Nor am I claiming any absolutist statement like something that needs a subsidy should not be done (I don’t believe that at all).

I cited the Austrian site because it was a detailed site that I could find quickly and with a story that is consistent with the true challenges faced in drug development and manufacturing as well as my own observations.

Ray Lopez @ Jon the Austrian February 23, 2014 at 3:21 pm

@ Jon – I agree patents are an indirect subsidy, but think of it as a catalyst. You do realize that with a catalyst the “activation energy” to trigger a reaction between two chemical compounds can be lowered, and without the catalyst the reaction would never occur? Has it occurred to you that without patents –the indirect subsidy–you would get slower innovation?

Here’s a fantasy to consider: both the computer and electroplating and batteries and the formula for certain Roman concrete and heavier than air flight were invented before the 20th century, but lost (speculative, except for the Roman concrete which clearly was lost and reinvented in medieval ages). Why? No patents to preserve the knowledge. And if we had patents in place back in those days pre-20th century might see the PC (a sort of Babbage engine or Antikythera mechanism), better building materials, electroplating, batteries and the airplane. No kidding. Alternate history to be sure but grounded in some facts.

Jon February 21, 2014 at 8:21 pm

Is this an attempt at humor? Value is created when a new approach or technology is discovered or someone builds infrastructure to produce and distribute items. It is not created when someone takes something that already exists and grants someone property rights.

Patents are designed to reward people for the time involved in research and development. To the extent that people patent things that require little or no investment in research and development, they are merely extracting rents from the rest of society. Of course it is not trivial to separate out when we are rewarding someone for the work involved in discovery and when we are just rewarding people for being a split second faster in placing their flag on a claim.

Jon February 22, 2014 at 8:04 am

Roy:
Sorry: You get the patent after you invent, not before. If you can’t patent penicillin because it is in the public domain, you can patent specific formulations and specific techniques for manufacturing it or you can make the process a trade secret.

In 1928 Fleming merely discovered that something excreted by fungi killed bacteria. There still was plenty of new research required to figure out what the substance was, how to make it, and how to use it to treat infections. These were all sources of a patent.

Patent rights are an indirect subsidy. It requires the government to force others not to reproduce the discovery, regardless of whether the other parties create the similar invention independently. The length of the patent (and hence the amount of the subsidy) is not determined by any market mechanism, but by a regulatory mechanism.

This is tough for some people to swallow, as there really is no way to encourage this kind of risk taking without some sort of subsidy–direct or indirect. Sorry, the world is not built to fit simple political-economic philosophies or fantasies.

ant1900 February 21, 2014 at 7:55 am

For a lot of people, cable TV, internet, and cell service are massively underpriced. Yes, prices would likely be lower if there was more competition. Quality customer service and reliability leave a lot to be desired in many markets. But it is hard for me to complain about high prices when I get so much value from the services.

Dave Anthony February 21, 2014 at 9:16 am

Imagine how much more value you would get from faster speeds and lower prices.

FCC franchising rules are one of the primary reasons we have so little competition. In many markets there are only 1 or 2 players and they mirror each other’s services. There is no challenger disrupting the market, and the franchising restrictions make it difficult for any new company to enter a market without getting permission from the local franchising authority (permission usually comes with a lot of strings attached, such as requiring full build outs even in areas that will likely not give them much business).

In the few markets where a challenger does come in (like Google Fiber), the stagnant players seem to magically up their game (at least with better speeds).

MAS February 21, 2014 at 12:33 pm

The FCC does not franchise local networks. In fact, the 1996 telecommunication act amendments grant the FCC the authority to pre-empt any state rules which inhibit local telecommunications competition. For video services, municipalities due impose franchise requirements, including coverage requirements. However, antitrust law prohibits them from outright limiting of over builders.

The real limit to competition is coming from state legislatures which, under heavy lobbying by cable firms, have passed laws limiting the ability of municipalities to build their own networks. So whereas Chattanooga, TN and Lafayette, La have state of the art municipally-owned fiber networks, cities in Pennsylvania and Texas are prohibited from making similar investments.

Morgan Warstler February 21, 2014 at 7:57 am

By the way, dear reader, I am not clever enough to use Netflix streaming, as I find the TV menu confusing. So I still get the discs in the mail.

– this should be the sole forward in Great Stagnation.

That said, TV menuing has proven harder to engineer than Pearlman’s DIDO/Pwave. When I first saw a prototype of WebTV at his company in like 96, everyone already talked about how hard it was to do navigate from 8 feet away, and I kind of just assumed it would someday get fixed.

Still no.

ant1900 February 21, 2014 at 8:02 am

The key is that we still need the true one-device device, that can watch TV, record multiple channels, stream to other TVs in the house and internet connect devices outside of the house, and also pull down streaming content from Youtube, Netflix, Amazon, etc. Once you have all of that in one device and one remote, one onscreen menu, and there is no switching between different inputs (the cable box, the Roku, the Apple TV, the Google Chrome, etc.) for 1 particular type of content.

Tivo is getting pretty close with the latest box.

William Rinehart February 21, 2014 at 9:53 am

I have never been fully convinced that there will ever be one device to rule them all.

Brandon Berg February 23, 2014 at 9:03 am

One was developed several years ago, but some tricksy hobbits made off with the prototype.

Chris S February 21, 2014 at 8:53 am

The best interface I have seen yet is the laptop paired with the Roku. (Maybe Apple TV is similar?)

Pair your Roku and laptop (enter a code provided by the Roku on youtube’s site). Search and select on your laptop. When you find the video you want, choose to play it on “the living room tv” menu option. Done.

Sometimes my parties devolve into me playing youtube dj. I can’t yet fill a queue, but I can continue searching, even previewing, and have the next one up when the last one starts. Lame? Perhaps – I spent my new year’s eve playing 1980s MTV videos, it was a lot of fun actually.

I can sort-of do this with Netflix Streaming and Amazon Prime, but not ideal – I need to add to watchlist, switch to the TV remote, restart the relevant app to get the list to refresh, and then I can play it.

Maybe youtube patented this easy, innovation-driving idea???

Topper Harley February 22, 2014 at 2:05 pm

Netflix and a smartphone works well. Find it on the small touchscreen in my hand and fling it onto the tv. Can even start watching in my office and take it into the living room.

Sony and other big names give away apps to pair smart devices and your internet enabled tv/bluray player.

Michael February 21, 2014 at 10:11 am

The solution to Tyler’s problem is a Roku + a Harmony remote.

The web isn’t meant for viewing at TV distances. That’s what your iPad is for (or laptop). The TV is only for dialing up shared entertainment.

Even still, I find that i prefer (in Netflix and Vudu and other services), to browse for new titles on a tablet or computer, and then only dial up the show on my Roku after I’ve added it to my list. I generally don’t like scrolling through the titles on my TV. Not information dense enough, not enough navigation options, and too difficult to type in specific requests.

Just another MR Commentor February 21, 2014 at 7:59 am

I believe this article might be relevant
http://www.dailymail.co.uk/sciencetech/article-2113959/Homeless-people-turned-walking-wi-fi-hotspots-2-15-minutes-SXSW.html

It’s two years old but I think this could solve some of the placement issues if it’s adopted for cellular network antennas. It is also a good example of some of the novel, non-intuitive jobs we will see being created with the explosion of internet and smartphone penetration. A nice counterexample to those who say we are doomed to high unemployment and ZMP workers forever (rather than just for this temporary economic recalculation period).
Your focus on the neccessity of deadweight loss is very good and it is often not mentioned how monopolies are totally neccessary in areas like this since companies must be assured monopoly surplusses in order to have funds for future innovation. This is why in fact sectors with a monopolistic structure tend to be very innovative and efficient and in the end consumers benefit – higher prices but much cooler services and products it’s WIN WIN WIN.

Ray Lopez February 21, 2014 at 8:11 am

JAMRC–are you in ironic mode for this post? Your post makes sense. I am reading an old 1987 book by economist Peter Temin on the fall of the Bell system, and it points out it was basically a change in ideology that doomed Ma Bell. In this case, as I said upstream perhaps the death of Net Neutrality before the Sup. Ct. the other day has something to do with this…

Steve Sailer February 22, 2014 at 5:26 am

A win-win-win solution.

Watchmaker February 23, 2014 at 1:37 pm

The trolls are working harder than the commentators.

8/10. Would +1.

Age of Doubt February 21, 2014 at 8:03 am

I’m not sure why mobile devices count as broadband. Squinting at a tiny screen is not the most ideal way to consume the Internet.

Chris S February 21, 2014 at 8:55 am

You should try harder – given a stand and a pair of headphones, its a great way to catch up with short shows at the lunch break.

Still don’t understand why sites – The Daily Show for instance – force you to watch the show in 5-minute segments when you can watch the whole thing without interaction on the laptop. Get out of my device choice space!

Michael February 21, 2014 at 10:17 am

They count as broadband because they are over a speed threshold (roughly enough to allow for streaming video playback). But, when it comes to consumption, you are aware of things like MiFi and wireless tethering? The cost and speed are there already to use something like a MiFi as your household internet, it is just a matter of the caps drifting north a little bit further.

Brett February 21, 2014 at 10:36 am

Michael beat me to this, but all of the big carriers offer Mobile Broadband, which you can use to connect a laptop or other device to the internet through their wireless networks. I can’t vouch for the speed, and the data plans are still fairly tight and expensive (10 gigabytes through T-Mobile’s mobile broadband costs about $70/month), but there may be a lot of room to growth there considering the Verizon news above and the potential for spectrum auctions in 2015.

I’m also wondering if some of the wired carriers could short-circuit the issue of needing to do build-outs to particular houses. Xfinity’s new routers blast out a separate XfinityWifi signal for any Xfinity subscribers to use separate from private WiFi if you don’t specifically have them disable it, and as long as it doesn’t crowd out too much airspace you might be able to have fiber/cable carriers running through areas and selling access through local WiFi networks. Japan had something like that when I was there on vacation, although I wasn’t there long enough to make it worthwhile to try and buy into the WiFi networks.

Al February 21, 2014 at 11:17 am

I second the thought that the data plans are still too expensive for mobile broadband to compete with cable broadband, at least in my area. Google fiber will never come here. The market is too valuable to the existing cable broadband player.

Chris S February 21, 2014 at 2:27 pm

My friend, an accomplished software architect for one of the two Seattle-based behemoths, refuses to pay for a home broadband connection on some odd principle. He provides all of his internet needs, including VPN to work and Netflix streaming, on his mobile data plan. He has to carefully watch his data caps (2G or 5G iirc) but claims it is smooth as silk.

I’d rather pay Comcast $40/mo for my 20mbit connection and no (practical) usage cap. Which, frankly, I consider amazingly, incredibly cheap for the amount of value I derive from it.

Al February 21, 2014 at 4:14 pm

Yeah, I use TWC for the same kind of reasons. But, I have a difference of opinion on one point: I think that almost all Americans should have cheap access to really reliable, smooth, 100+ Mbps connections. I mean, 20mbits is nice compared to a DSL line from the year 2000 or a dial up connection from the 90’s, but — in 2014?

I guess, what I cannot quite reconcile is the fact that on one hand, we’re dealing with something in the technology domain (the internet, constant innovation, competition between hardware companies like Cisco and Huawei, an expanding segment of the economy, etc), and, on the other hand, a slow moving organization which is basically a public utility with far too much influence at city hall and in the state legislatures. These cable companies are like the public service unions. They get a lot of money from the average city resident but deliver too little.

Age of Doubt February 21, 2014 at 8:08 am

“The longer and more you regulate cable prices, the longer it will take this sector to reach a more competitive equilibrium.”

How do market forces apply to powerful monopolies? It’s not as though companies haven’t tried to compete with Time Warner or Comcast. They just have better lobbyists, and the power to buy up or price competitors out of existence.

Blind faith in the free-market assumes everyone plays fair, which is naive.

Just another MR Commentor February 21, 2014 at 8:12 am

Sorry, there’s no inconsistency between a competitive free market and having some companies using lobbyists. Try again.

Age of Doubt February 21, 2014 at 8:33 am

Right, because some small, innovative startup will have the same ability to buy off their congressman as a monopoly. How silly of me.

Chris S February 21, 2014 at 8:57 am

Monopolies are not immune to market forces, they can just stave them off a while longer. How’s Kodak’s film monopoly doing these days?

Just another MR Commentor February 21, 2014 at 9:08 am

Exactly. It’s a fact of history that monopolies end up being rendered techonologically obsolete. In fact the presence of monopoly structure in a sector always means that there will be a massive innovation explosion. I would add the the real dangers in any free market system are not monoplies but labour unions and artificial barriers to the free movement of labour.

Steve Sailer February 22, 2014 at 5:32 am

“It’s a fact of history that monopolies end up being rendered technologically obsolete.”

Indeed. Look how the DeBeers diamond monopoly only lasted about 75 years — that’s no more than the average lifespan. Or look at the Nielsen TV ratings monopoly or the Arbitron radio ratings monopoly — those are only about a half century old. Real soon now they will be swept away by technological innovation. If we just sit back, Nielsen and Arbitron might even decide to try to compete against each other.

Brett February 21, 2014 at 10:38 am

They’re only monopolies because of franchising laws in some states. When those laws are changed and local officialdom doesn’t throw down a ton of barriers to new construction, you get rival fiber and cable developments – such as Google Glass’s project in Kansas City and elsewhere.

Just because it has high fixed costs doesn’t make it a monopoly.

Chris S February 21, 2014 at 2:30 pm

High fixed costs and especially high fixed costs prior to revenue or even the certainty of revenue does lead to coordination issues. Some coordination is needed to get investors over the hump. And a temporary monopoly does encourage this.

Despite my comments above, patents in drug discovery achieve this. Companies are willing to spend $1B getting a drug to market because they can collect monopoly rents for a time, hopefully meaning total revenue > total investment before this period expires.

Brandon February 21, 2014 at 3:26 pm

FWIW, publicly funded research accounts for around 50% or more of medical research, and drug companies often spend more on advertising for the latest erection cure than they do on actual research.

Topper Harley February 22, 2014 at 2:16 pm

Basic research != getting a drug to market.

Watsamatta U discovers wasp spit can be a pain reliever. Great!
Now how do you economically produce it? What is the correct dose?
What side effects and interactions does it have? Does it perform better or worse than aspirin, acetaminophen, or ibuprofen?

By the way– Viagra was a heart drug that didn’t really work all that well. Repurposing turned lemons into lemonade.

Brandon Berg February 23, 2014 at 9:29 am

Those claims range from gross misrepresentations to outright lies. Translating the results of basic research into safe, effective, and FDA-approved drugs is extremely expensive and has an utterly abysmal success rate.

What university research typically does is identify a plausible biochemical pathway for treating an animal analogue of a human disease. These are a dime a dozen and almost never translate into treatments capable of getting FDA approval. Maybe it’s because of differences between humans and the target animals. Or because there’s no tolerable way to get the drug into the brain or wherever it needs to go. Or they can’t find a drug that activates the pathway without unacceptable side effects.

It also isn’t true that drug companies spend more on advertising than R&D. The “advertising” figures typically thrown around are actually the figures for, IIRC, pretty much all expenses other than R&D and manufacturing costs. Drug companies actually spend more of their revenues on R&D than almost other industry besides software. Derek Lowe had a good piece debunking that claim on his blog.

There’s also fact that whole point of advertising that brings in more money than it costs, i.e. it increases the returns to R&D. Why anyone thinks the relative amounts spent on those categories is at all relevant is a mystery.

Finally, if you think erection drugs are frivolous, stop and imagine how it would feel to have your doctor tell you can never have sex again.

BenK February 21, 2014 at 8:33 am

Satire is perhaps the best response. The idea of a prize for innovation that is day by day doled out to the incumbant and persistently invested in the regulatory capture of the party which would otherwise dispense the ultimate reward for displacing the incumbant…

jtf February 21, 2014 at 1:46 pm

+1

J. Ott February 21, 2014 at 4:24 pm

+2

Turkey Vulture February 21, 2014 at 10:10 pm

Yep.

Phil February 21, 2014 at 8:35 am

The “current cable semi-monopoly” has been in existence since the 70s

KLO February 21, 2014 at 12:58 pm

The problem with wireless is not theoretical speed — LTE looks great there. Rather the problem is the inability to support a large number of simultaneous connections. In practice, as networks have migrated to LTE and other fast connections, the number of connected devices has increased to a level that the technology can no longer support. Thus, it now makes sense to turn off LTE and go back to 3G on a phone when in a crowded city. Now imagine if wireless was carrying all of the load. That YouTube video that buffers eight times during its minute and a half duration? Completely unwatchable.

The idea of wireless competing with wired connections in the next decade is a pipe dream. The only reason it is even somewhat usuable today is that wired connections are doing all the heavy lifting.

Bob February 21, 2014 at 1:16 pm

With increased wireless usage, you eventually get what you can already see in some office buildings. Mine is completely littered with very small AT&T devices that act as an extremely short range cell tower. There are three of them in my wing of the floor, and you can see the LTE connection go all the way to full bars as you approach them, and weaken as you get further away.

Those devices are actually wired to each other, so in essence, what we have is a WiFi network, operated by AT&T, that uses cellphone frequencies.

I personally would have less trouble with this monopolists if they had a lot less control over local politics and the state legislature.

Mo February 21, 2014 at 4:09 pm

This. Ever try to make a call or send a text (let alone use data) after leaving a big sporting event? If you’re lucky, everything crawls along at a snail’s pace.

collin February 21, 2014 at 9:23 am

Of course, nice note on Google Fiber potential and they have to fight tooth and nail to win access in various Kansas cities for access. Realize the lobbyist are stronger in the state legislatures and even Rs tend to be more pro-business versus pro-market. (We only have access based on blessed job creators.) Judging how Comcast & TWC are fighting Google fiber and other government agencies in Kansas does not give a lot confidence in Comcast increasing its monopoly power over the internet broadband after the merger. In terms of history, would have the AT&/Ma Bell break-up gone as well if Ronald Reagan had assigned Judge Bork over the case? It is hard to argue against Judge Greene decision in that case.

I don’t blame for not streaming Netflix as the movies they offer on that service are 90% awful.

Michael Stack February 21, 2014 at 9:31 am

I think others have made similar points above, but the Netflix client that comes with most TVs and Blu-Ray players is terrible. There is a surprising amount of variety in Netflix clients. The ones that are the best (though there are many I haven’t tried):

* Apple TV (my personal favorite and you can pick one up for $100)
* Xbox 360 – another nice client though expensive if you’re only buying it for the Netflix client

Give the Apple TV a try.

wj February 21, 2014 at 9:38 am

Re: “By the way, dear reader, I am not clever enough to use Netflix streaming, as I find the TV menu confusing.”

You must be using a remote. Google Chrome driven Neflix should do the trick.

Even a stinky interface isn’t so bad when driven by a touch device. On the other hand, TV-remotes are as good as worthless, regardless of how good the interface might be.

Brandon February 21, 2014 at 3:27 pm

The Roku 3 menu is very nice as well.

jseliger February 21, 2014 at 10:29 am

I still get the discs in the mail.

I do too but for a different reason: selection. The streaming selection is not good and I rarely want to watch TV just to watch TV; more often I want something specific. In addition, Netflix does a good job of adding contemporary movies to their database, which I add and wait for a movie to show up in the mail (“Oh, I’d forgotten I put Blue is the Warmest Color on the queue but I remember the good reviews…”).

bob February 21, 2014 at 11:24 am

I just resubscribed to discs for the same reason. I’m someone who loves all the foreign content available on streaming but once you’ve plumbed that the selection gets thin really fast.

Chris S February 21, 2014 at 2:32 pm

Me too. My primary use of Netflix Streaming is children’s programming (ugh) or nature documentaries when I want pretty pictures that don’t capture too much attention.

Steve Sailer February 22, 2014 at 5:35 am

“Blue is the Warmest Color”

LOL

Chris Hansen February 21, 2014 at 11:15 am

Compare the UI on a cable box to Netflix or Amazon. With Netflix you can put a tiny bit of effort to populate your “My List” and have everything at your fingertips. If you find getting the discs in the mail easier then you are just old and set in your ways and most likely beyond actual UI improvements.

anon February 21, 2014 at 3:17 pm

If you find getting the discs in the mail easier then you are just old and set in your ways and most likely beyond actual UI improvements.

Oh yes, because rather than good design users should adapt to lousy UI.

Uh huh.

Netflix disks with Amazon Prime is the way to go.

David C February 21, 2014 at 11:25 am

I live in the area. Have me over for lunch some day and I’ll show you how to use streaming.

PD Shaw February 21, 2014 at 2:06 pm

You sure you want to do that? Have you read any of the advance selections from the forthcoming “An Economist Gives Lunch”?

Al February 21, 2014 at 11:40 am

But, by and large, the US consumer and small business person cannot access world class broadband speeds, and that is probably hurting our economy in certain ways.

The most interesting candidate city in Google’s Fiber program is San Jose, California, about as close to the heart of Silicon Valley as anyone is going to get. If truly high speed broadband internet can be stifled in San Jose, then something is really broken with our “market system.”

DaveL February 21, 2014 at 11:50 am

ant1900: The all-in-one box existed in prototype in 2000, from a startup called “Ucentric.” It got no traction and the IP was eventually bought by Motorola and (some of it) used in their cable boxes.

Tyler: I second the recommendation of Roku. Very easy user interface from a dedicated remote. That being said, we still get discs too.

john personna February 21, 2014 at 12:27 pm

I have two Rokus, and use them straight, without pc/phone links. I find them easy, especially the Netflix interface. Hulu is not so good. Haven’t tried Amazon on them yet.

(The Roku 3 has a basic YouTube interface now, which works pretty well.)

Finch February 21, 2014 at 3:23 pm

Amazon works fine on a Roku. The Amazon app is not great, but that’s not Roku’s fault. It’s bad everywhere I’ve seen it. The Roku 3 is a nice, simple device.

Tivo has the best overall interface and functionality mix, though. I’ve never used anything close. And the new Roamios offer a pretty convincing whole-house solution.

Herb February 21, 2014 at 12:19 pm

“By the way, dear reader, I am not clever enough to use Netflix streaming, as I find the TV menu confusing. So I still get the discs in the mail.”

That must be why you think Netflix’s streaming service is a similar product to Netflix’s DVD-by-mail service.

And this is just nonsense:
“The longer and more you regulate cable prices, the longer it will take this sector to reach a more competitive equilibrium.”

Cable PRICES are not regulated. It’s all the other stuff, a technical understanding of which you seem to have none.

john personna February 21, 2014 at 12:23 pm

I have a personal story, new since our last broadband discussion. (Monopoly power demonstration)

I have been a long time cable tv user. When I moved to my town there was a mom & pop provider. It was acquired, and acquired again. At that point internet was offered and I joined that service. The city monopoly was acquired again, this time by Time Warner. I allowed my bill to climb to $140/mo for internet, cable, and DVR. Of that $48 was for internet. I decided to ditch the rest, and go internet only. I turned in my boxes and signed on, for $48, which drifted to $52 shortly.

Just yesterday I got an interesting letter. It claimed that I had been given an “introductory” rate of $52 a year ago, and that my new rate would be $70, unless I committed to 12 months at $60 (“A $10 savings!”).

So, I went to see AT&T, only to discover that I’m barely wired here. I can get 768K BPS and that’s it. So I am stuck, pay the freight with my monopoly for (what they call 30 MBPS, but I measure as 16), or shift down to a lower speed.

So basically, yes, there are “options on the horizon” as there have been for the last 20 years, but right now I am stuck taking what my monopoly provider deigns to give me.

Al February 21, 2014 at 12:48 pm

Yes. I am in the same situation.

AT&T’s technology is not competitive. And TWC keeps raising the rates for broadband internet (less than 20 Mbps download / 1 Mbps upload). And it’s been this way for at least 9 years.

Once upon a time Verizon FiOS put billboards up in our area, but every time i called them the service was in fact not available in our area. Still waiting on that.

Once upon a time there was the possibility of solving the last mile problem with WiMax. I think that’s dead now.

And Verizon’s 4G LTE service is even more expensive than TWC, so it’s not a competitive offering in the home here either.

I see no new “options on the horizon” either.

jtf February 21, 2014 at 1:48 pm

Verizon’s no better; I have a similar story to your own.

Rahul February 21, 2014 at 1:10 pm

Wasn’t this post on MR ~2 years ago describing a very similar DIDO concept?

http://marginalrevolution.com/marginalrevolution/2011/08/new-wireless-technologies-lifi-and-dido.html

Amy February 21, 2014 at 4:02 pm

I work in telecoms, so I hope I can shed some light on this situation.

Let’s suppose that we solve current limitations on technology and can offer mobile broadband at wired broadband speeds and prices. The problem is that most markets will still only see 2-3 competitive broadband providers, with extremely high barriers to entry. Further, since mobile operators are highly dependent on cable companies to provide backhaul to their towers, cable companies have a strong lever by which to deter price competition.

Google Fiber is not a serious offering. (Doubt me? Calculate out how long, at current rates of buildout, it would take the service to reach 10% of the US population.) Satellite is crippled by latency and is not seeing much investment and/or innovation.

Streaming video is just one of many services that run across broadband networks. Adequate connectivity levels are required for innovations in autonomous machines, sensor-driven big data and realtime analytics, cloud services, realtime communications and collaboration…basically the majority of everything interesting or exciting going on in technology today.

Against the scale of the problem of why investment in data transport infrastructure is inadequate, it’s certainly true that the proposed Time Warner acquisition is pretty trivial. But it’s still a further negative step toward rent-seeking (albeit more as a monopoly buyer than seller) and away from competition and innovation.

Al February 21, 2014 at 4:21 pm

Thank you for this posting. I was surprised to learn about the “backhaul” problem. I had been under the impression that the “last mile” problem was the really big problem. But “backhaul leverage”, as you say, sounds like another area where the big cable operators are slowing us all down. Interesting stuff.

Komori February 22, 2014 at 12:57 pm

The “backhaul problem” is a political/rent-seeking problem. Last-mile is a combination of political and physical plant problems. The latter requires significant capital investment even if there weren’t huge political barriers raised by existing rent-seekers (see how many states have outlawed or effectively banned-without-calling-it-that-explicitly last-mile competition beyond one-cable-one-DSL), so has high barriers to entry by nature. The former simply requires some small investment (interconnects are cheap) that isn’t happening solely because the lack of last-mile competition is encouraging the rent-seekers to double-dip.

Ray Lopez February 21, 2014 at 10:44 pm

Thanks Amy that was valuable. Here in the Philippines, I run my internet based business using a 2 to 3 Mbps wired connection with relatively high latency. But the servers are in the USA, I just do command and control stuff from here and answer emails, surf the web, so 3 Mbps is sufficient. But it costs almost $100 a month, which is a lot of money considering $4000 is what a family of four makes a year.

Jon February 21, 2014 at 8:30 pm

There are a some difficulties with TC’s position. First, the library (and probably eventually the post office) are funded by tax payers, so the “free internet” is not so free. The bus that people ride to go to the library is also funded by taxpayers.

Secondly, disparities in access to broadband may aggravate disparities in opportunities, as the skills and knowledge that one gains from internet access can increase ones marketability.

Thirdly, there is a drag on taxpayers created by the fact that lack of universal internet access requires governments to use less efficient means of information distribution.

Turkey Vulture February 21, 2014 at 10:16 pm

Think if the U.S. economy were composed of a single conglomerate corporation with monopoly pricing power in every single market. That would be a gigantic reward for anyone that could innovate and unseat the incumbent monopolist! Sounds welfare-enhancing.

Jeff Gould February 22, 2014 at 2:47 am

You can’t figure out how to stream Netflix? Seriously?

Have you tried getting a Roku box instead of using the menus on your “smart TV”?

Eliezer Yudkowsky February 22, 2014 at 4:02 pm

It seems to me that the deadweight prize is not credibly promised to the new entrant, because Comcast will drop their prices exactly as the new entrant enters, thereby causing neither of them to capture the surplus. Which greatly diminishes the prize of competing with Comcast; a new competitor in the monopoly cannot capture the *current* level of monopoly rents, except maybe by being acquired by Comcast in which case the consumer still gets screwed.

I would expect this to be a standard question in economics and to have been treated in many papers. Is the sophisticated answer different from the obvious one?

Ryan February 27, 2014 at 7:08 pm

Robert Kulick has written up the Comcast/Time Warner merger in the context of modern antitrust literature: http://robekulick.wordpress.com/2014/02/27/some-thoughts-on-the-comcasttime-warner-merger/

In broad terms this is all consistent with what Tyler has been saying. The ISP situation is likely to be very dynamic in coming years, with new spectrum auctions coming next year. Concerns about Comcast using its content origination properties to exercise monopoly power are forgetting how the monopoly’s profit maximization problem works.

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BEIJING, Feb. 21 (Xinhua) — A Beijing-based Tibetology scholar has criticized the Dalai Lama’s Friday meeting with U.S. President Barack Obama in the White House, saying it was another “anti-China farce.” “Once again, the Dalai Lama slipped into the White House Map Room for a so-called ‘unofficial meeting’ with Obama. This was another farce against China,” said Lian Xiangmin, a researcher with the China Tibetology Research Center, in a signed article.

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