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Category Archives: L9

ICT Behavior at the Periphery: Exploring the Social Effect of the Digital Divide through Interest in Video Streaming

By Erik W. Hanson and Justin C. LoTurco

We investigate the factors that influence changes in consumer behavior with regard to video streaming. We focus our analysis on the effect of bandwidth impairment to explore a potential consequence of the digital divide. To measure the change in relative popularity of video streaming services, we use Google Trends data as a proxy. We then investigate whether broadband speed improvements in rural vs. urban regions affect the proxy differently. We find that increasing the broadband speeds in rural regions appears to stimulate greater interest in video streaming than equivalent speed increases in urban regions.

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Advisors: Professor Michelle Connolly, Professor Grace Kim | JEL Codes: C33; J11; L96

Evaluation of the Impact of New Rules in FCC’s Spectrum Incentive Auction

By Elizabeth Lim, Akshaya Trivedi and Frances Mitchell

On March 29, 2016, the FCC initiated its first ever two-sided spectrum auction. The auction closed approximately one year later, having repurposed a total of 84 megahertz (MHz) of spectrum. The “Incentive Auction” included three primary components: (1) a reverse auction where broadcasters bid on the price at which they would voluntarily relinquish their current spectrum usage rights, (2) a forward ascending clock auction for flexible use wireless licenses which determined the winning bids for licenses within a given geographic region, and (3) an assignment phase, where winning bidders from the forward auction participated in single-bid, second price sealed auctions to determine the exact frequencies individual licenses would be assigned within that geographic region. The reverse auction and the forward auction together constituted a “stage.” To guarantee that sufficient MHz were cleared, the auction included a “final stage rule” which, if not met, triggered a clearing of the previous stage and the start of a new stage. This rule led to a total of four stages taking place in the Incentive Auction before the final assignment phase took place. Even at first glance, the Incentive Auction is unique among FCC spectrum auctions. Here we consider the estimated true valuation for these licenses based on market conditions. We further compare these results to more recent outcomes in previous FCC spectrum auctions for wireless services to determine if this novel auction mechanism
impacted auction outcomes.

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Advisor: Michelle Connolly | JEL Codes: L5, O3, K2, D44, L96

Regulatory Uncertainty: The Impact of the 2015 Open Internet Order on Broadband Infrastructure Investment

By Dane Bourcy Burkholder and Chin Jie Lim

This paper analyzes the impact of the United States Federal Communication’s (FCC) March 2015 Open Internet Order (OIO) on broadband infrastructure investment outcomes such as changes in speed of services, market entry. We find that higher broadband investment levels deter potential entrants and may weed out competition amongst incumbent ISPs from December 2014 to December 2016. The 2015 OIO appears to have negatively impacted the probability of an ISP entering a census block for the first time by 7.17% during any six-month time periods from June 2015 to December 2016 compared to the time period from June 2010 to December 2014.

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Advisor: Dr. Michelle Connolly | JEL Codes: D21, D25, D42, L20, L50, L96

Resource Adequacy and Energy-Only Market Design: Assessing The Impact of ERCOT’s Operating Reserve Demand Curve1

By Max Lipscomb

I examine the effect of an Operating Reserve Demand Curve (ORDC) which was recently implemented in Texas to assist power producers in recovering their fixed investment costs. I characterize and employ an economic plant dispatch model to examine the ORDC’s effects on representative natural gas plants in Texas, allowing me to determine whether or not the ORDC is likely to induce new capital deployment. I find that the ORDC’s positive effects are minimal and likely negated by the policy’s complexity, sending unclear signals to prospective investors. My results suggest that the policy itself is insufficient to incentivize the construction of new generation capacity in Texas’s electricity market.

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Advisor: James Roberts | JEL Codes: L9, L94, L97 | Tagged: Demand Curve, Electricity, Energy-only Operting Reserve, ERCOT Texas, Resource Adequacy, Utility Power

Empirical Evidence of Airline Merger Waves Based on A Selective Entry Model

By Peichun Wang

Ever since the Deregulation Act in 1978 in the U.S. airline industry, there have been series of major airline mergers and acquisitions, notably three major waves in the 1980’s, 1990’s, and late 2000’s. These mergers, especially the more recent multi-billion mergers (e.g. Delta- Northwest, United-Continental) have shown a trend of substantial market consolidation that inevitably worries consumers as well as the U.S. Department of Justice (DoJ). Most academic literature to date have tried to study mergers in a static setting where these mergers are assumed to be exogenous. However, the clear pattern of merger waves in the airline industry, as well as many other industries, suggests strong correlation between mergers. A few studies that attempted at a dynamic merger model remain theoretical due to computational barriers. In this paper, I found empirical evidence of merger waves by investigating the change of airline carriers’ incentive to merge after another merger between two other carriers. These results are based on a structural model of the U.S. airline industry, in which I estimate demand with a standard (for dierentiated product markets) discrete-choice nested logit model, but allow for selection on entrants’ costs and qualities, i.e. rms with lower costs and higher qualities would have been selected into the market before the merger, suggesting that post-merger entry is less likely than what non-selective entry models have predicted.

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Advisor: James Roberts | JEL Codes: L13, L25, L93 | Tagged: Airline, Merger Wave, Selective Entry

Questions?

Undergraduate Program Assistant
Matthew Eggleston
dus_asst@econ.duke.edu

Director of the Honors Program
Michelle P. Connolly
michelle.connolly@duke.edu