Section 5 sophisticatedly exposits the specific case on how the free market solves frequency interference in admonishment of the special regulation. Excerpts of his discourse:
“All property rights interfere with the ability of people to use resources.What has to be insured is that the gain from interference more than offsets the harm it produces. There is no reason to suppose that the optimum situation is one in which there is no interference”
“The operator whose signals were interfered with, if he had the right to stop such interference,would be willing to forego this right if he were paid more than the amount by which the value of his service was decreased by this interference or the costs which he would have to incur to offset it.” He goes on to talk about the case of deliberate interference. This is about deliberate spectrum preference overlap not accidental interference.
And Coase disambiguates his advocation if it still isn’t clear: “What this analysis demonstrates,so far as the radio industry is concerned, is that there is no analytical difference between the problem of interference between operators on a single frequency and that of interference between operators on adjacent frequencies.”
“It has been the burden of this article to show that the problems posed by the broadcasting industry do not call for any fundamental changes in the legal and economic arrangements which serve other industries.”
You’re mistaking market efficiency, transactional costs and externality. It’s argued that legal rules are necessary to instead reduce externalities by market failures, which existed long before Coase. Coase instead contributed to the limits of cost savings about transaction costs provided by the formation of business and maintenance of markets in The Nature of the Firm (aside from his free market advocation of the spectrum), which became Coase’s theorem.
I’m educated as an Electrical Engineer; it’s clear to us spectrum rivalry isn’t contentious but true. Even amongst a single broadcaster within his own spectrum he runs into constant constraint and trade off by his own bandwidth.
I’m not arguing for or against the ideas of Coase, only correcting that public presentation of his ideas as an interventionist. Especially since Coase didn’t think externalities were unfortunate, instead he thought that was a “dirty word”, and seldom found a case for a government all to eager to specially regulate.
But it's rivalrous in a distinctive way--it's a function of contemporaneous and evolving limitations of the existing state of technology and usage patterns. To quote a famous IEEE Spectrum article, "Moreover, interference is not some inherent property of spectrum. It's a property of devices. A better receiver will pick up a transmission where an earlier one heard only static. Whether a new radio system "interferes" with existing ones is entirely dependent on the equipment involved. Consequently, the extent to which there appears to be a spectrum shortage largely depends not on how many frequencies are available but on the technologies that can be deployed. Many regulations intended to promote harmony of the airwaves have instead, by putting artificial limits on technology, created massive inefficiency in spectrum utilization." https://spectrum.ieee.org/telecom/wireless/the-end-of-spectr... What that's referring to are techniques like MIMO, beamforming, beam steering, etc.
As David Reed is quoted and paraphrased as saying in that Salon article: '[We have stupid radios not because we haven't figured out how to make them smart but because there's been little reason to make them smart. They're designed to expect signal to be whatever comes in on a particular frequency, and noise to be everything on other frequencies.] 'The problem is more complex than just making smart radios, because some of the techniques for un-confusing the receiver are best implemented at the transmitter, or in a network of cooperating transmitters and receivers. It's not simply the radios. It's the systems architecture, stupid!' https://www.salon.com/2003/03/12/spectrum/
We're only beginning to scratch the service of the channel discernment improvements that can had with MIMO, beamforming, beam steering, and other techniques, but we're limited by the larger ecosystem of devices and regulations, which is largely an artifact of a system which assumes a fixed interference burden across vast geographical areas. The channel capacity of a band of spectrum is, in the absence of coherent interference, point-to-point as a theoretical matter because non-coherent electromagnetic radiation does not interfere. To reiterate, interference as typically experienced is a function of the inability to differentiate a signal which is present or which could be present if the transmitting and receiving systems were more sophisticated, and (according to the theoretical work) this is ultimately a computational problem.[1] Thus "spectrum scarcity", at least in the context of P2P wireless networks, is a function of technology, not an intrinsic, fixed property.
Taking that context into account--that interference and thus the degree of rivalrousness for any band of spectrum is a complex, dynamic function that dissipates as technology progresses--we can end up drawing different conclusions than from the technological presumptions behind Coase's argument. For example, as someone else mentioned, maybe we should be promoting technological development by letting people freely interfere, which can be done by imposing no rules whatever, not even a property regime. Absent power limits, that's pretty much what we do with WiFi. Similarly, a lot of theoretical radio techniques are first explored and applied by the military precisely because of the adversarial context, and they're consistently fruitful because the physical limits of what's possible are still quite distant.
> I’m not arguing for or against the ideas of Coase, only correcting that public presentation of his ideas as an interventionist.
I never had the sense that Coase was characterized as interventionist, at least not in the context of FCC reforms. If refuting that is your goal, fair enough. IME, however, in popular discourse anything "free market" is generally considered non-interventionist, and as compared to FCC regulations contemporaneous with his paper that's a fair characterization. But from my perspective (and AFAIU of many others, especially in the SDR community), establishing a private property regime is still rather interventionist, no less than it is with copyrights and patents, relative to the baseline of nothing. Nobody claims taxi medallion systems are non-interventionist, even when medallions are a freely transferable property right (e.g. NYC, sub-class of medallions in SF, etc). Uber would certainly disagree.
[1] This is why 5G achieves aggregate bandwidth multiples in the same bands even though 4G channel efficiency is near the Shannon limit. See https://cmte.ieee.org/futuredirections/2017/05/17/taking-a-f...
> Whether a new radio system "interferes" with existing ones is entirely dependent on the equipment involved.
With this definition then there is no other type of rivalry. This is true for any resource with tragedy of the commons, where an externality is encountered. This goes for land, agriculture, pollution, oil, etc. The limit here is always the efficient production from some resource using technology. This is part of the ceteris paribus of rivalry.
For what you're discussing, for non-interfering waves with the same spectrum, you would need a QAM or some other modulation scheme, with more granular phase detection, which requires exponential more energy, thus capital, per degree resolution of phase detection at the same distance. Thus, the rivalry always exists because enterprises prefer the method leading to the cheapest production with the same product.
> maybe we should be promoting technological development by letting people freely interfere, which can be done by imposing no rules whatever, not even a property regime. Absent power limits, that's pretty much what we do with WiFi.
As I'll continue discussing in your other comment this is exactly what Coase advocated for.
> establishing a private property regime is still rather interventionist
It is in the sense you're discussing with the FCC but not in the Coase's sense where private property is in the strict abstract sense by enforcement of contracts between consenting individuals. Coase's point is that it shouldn't be specially regulated differently than the enforcement of any other private contract. Unless for specific cases which can only be known through experience
In the Chicago School monopolies are impossible; or rather, monopoly pricing is a fiction.
I can't find a direct top-down subdivision quote (my copy isn't searchable; he might not literally say it at all[1]), but efficiency of the single initial auction winner scenario can be logically inferred from what he explicitly says. For example, on pp 20-21 he says that in a property regime broadcasters would be able to assemble larger bands through free market purchases, subject only to their ability and desire to pay. Efficient aggregation and subdivision of spectrum is a built-in presumption.
AFAIU, applying Chicago School principles, the price at which a single owner of all spectrum would subdivide and sell a portion would have no (or at least de minimis) monopoly profit component. Another way to look at it is that ownership of any contiguous range of spectrum, just as with a contiguous piece of land, is by definition monopoly ownership. Breaking contiguousness might require a premium, but only proportional to the economic value from contiguous usage. Breaking contiguousness of all spectrum would require a premium proportional to the marginal additional usage value, which for all spectrum is pretty much nil. What usage of all spectrum has a value greater than the aggregated value of using two, smaller portions? More likely there's greater value in the latter than the former. At some point subdividing becomes inefficient, but certainly at that point we're no longer dealing with a single, contiguous band of spectrum. The initial, profit-maximizing owner has already subdivided most it, and probably no longer owns any of it--our hypothetical bid winner was probably a specialized broker banking on extracting value by subdividing it.
Of course, judging by your comment, we both believe that monopoly profits are real. Minimally they're approximately equal to the transaction costs required to buyout or break the monopoly, which is approximately equal to the cooperation costs for victimized buyers, which in practice would be born by a prospecting broker. (What we intuitively think of as "monopoly profit" are the opportunity costs to buyers having to pay a premium over the price paid in a competitive market. But we don't include those costs in the buyout/breakout scenario because they're recovered after the fact in the hypothetical and cancel out.) AFAIU, according to the Chicago School these transaction costs are de minimis, especially with large, liquid financial markets. This is why they're such fans of financial market deregulation, derivatives markets, short sellers, private equity, etc. But many people, including some Chicago School luminaries after 2008 (e.g. Greenspan), aren't so sanguine about those costs.
And this explains why AT&T and Verizon don't behave like the efficient economic actors in Coase's world--they won't subdivide or sublease their spectrum down to the levels required for WiFi-like usages because the costs of all of us cooperating to collectively bid is too high. Actually, that's not strictly true--the costs of cooperating can be trivial if we move beyond simple market theory. All we need to do is democratically choose, directly or indirectly, for the FCC to expand unlicensed spectrum, marginally rolling back a regime we previously democratically created.
Yes, I get that Coase in particular was appreciative of transaction costs in other contexts, such as in the theory of the firm. But Coase, and people in general, often make implicit assumptions about relative quantitive costs that become assumptions about qualitative costs that in turn become judgments about whether transaction costs are substantive. The transactional costs of subdividing and transferring spectrum among TV, radio, military, and other large, traditional broadcasters undoubtedly looked de minims in 1959. Certainly they were lower than the costs of FCC central planning, and that much I can't disagree with. But 40 years later the environment had completely changed.
[1] I distinctly remember seeing illustrations of this arguing-to-the-extreme concept, but the illustration itself was probably from another author as a gloss on Coase's work.
Coase: “Or, alternatively, if this operator had the right to cause interference, he would be willing to desist if he were paid more than the costs of suppressing the interference or the decrease in the value of the service he could provide if interference were barred. And the operator whose signals were interfered with would be willing to pay to stop this interference an amount up to the decrease in the value of his service which it causes or the costs he has to incur to offset the interference.”
Why would the operator have to pay to stop this interference if he owns that spectrum? If I go onto your land do you have to pay me to get me off of it? No, you have legal protection protecting that property right against non-consensual trespass.
Similarly, we can then conclude the operator must not have a property right of that spectrum if he must pay to prevent trespass, otherwise the operator would be able to file a criminal injunction to prevent the interfering individual from continuing to disrupt his signal at little cost--as you would do for a land trespass.
You're confusing the specific bill he mentions in the preceding section about the legal etiology of the FCC, which had proposed to do exactly what you're mistaking as the argument of Coase; where Coase thinks only that that specific bill shouldn't have been dismissed so trivially and as a resolve to the current situation where the FCC has already sold partial licenses--but leaves it thoroughly short of an advocation as he develops the case of no special regulation for broadcasting rights.
In Coase's view the government shouldn't be auctioning spectrum for limited times or with strings attached, as we commonly do now. (What the FCC does now is a quasi-Coasean spectrum regime.) In Coase's view spectrum usage would be most efficient by selling all spectrum (from 0-infinity) in a one-time auction to the single highest bidder. That bidder could (and, crucially, would in Coase's view) then subdivide and sell the spectrum according to market demand.
Coase's logic is solid; it's the premises that are problematic. First, it ignores transaction costs, or at least assumes they're de minimis. Even before the Law & Economics field took off (which is the field Coase most influenced), it was understood that one of the purposes of legal rules was to minimize transaction costs. Sometimes a market is made more efficient by specifying a fixed rule, and even more often by specifying a fixed default rule, then by permitting perfect contractual freedom. Of course, this begs the question of when you can know whether to intervene. But that's the only legitimate question, not whether you should ever intervene. In Coase's time his argument was more practical as widespread independent and even individual broadcast usage wasn't a commercially realistic scenario; transaction costs would always be born by economic behemonths and therefore would be de minimis relative to their price. But that's not Coase's actual argument; his actual argument is categorical and absolute, and that's how most modern proponents (IME) apply it as well.
Secondly, the notion of spectrum rivalrousness is contentious. If something isn't rivalrous, a property regime is unnecessary and usually strictly inefficient.[1] Without getting into the science (and I'm not an electrical engineer so I'd just make mince of things), as a practical matter spectrum usage is only partly rivalrous (rivalrous mostly deriving from the technical environment, not from the fundamental character of spectrum, as with physical goods and real estate). Your ability to enjoy maximal channel bandwidth between two physical points is limited by how sophisticated your transmitter and receiver, and ultimately by computational power, not by coincidental usage, per se. (Not unless someone is actively trying to screw you.) As WiFi has born out, we're all in an arms race for buying and using the latest, greatest gear. In one sense this is just a convoluted price signaling scheme--the people most in need of bandwidth just pay for fancier equipment--that might be less efficient than a simple property regime. But arguably in practice this process plays out slowly enough (especially with moderate power limits, carve outs for emergency use, etc) that these transaction costs are far less than the transaction costs we see in a market where we expect Verizon's or AT&T's spectrum usage rights to trickle down to ad hoc groups and individuals of spectrum users in the same way William the Conqueror's lands in England were slowly subdivided until every Englishman could build his own castle.
Nobody will ever sell me rights to spectrum for use within a 10-meter or even 100-meter radius, even though it's possible and would open up a tremendous wealth of opportunities. Cordless phones (POTS, not cell) and WiFi could only have happened with unlicensed (i.e. unowned) spectrum, in contradiction to Coase's argument.
[1] Exception--if food wasn't rivalrous because we all had free Star Trek-style replicators I imagine obesity would be an even worse problem than it is today, we'd be more sickly, and so we'd probably want to impose costs to maximize aggregate wealth. (See soda tax.) And if we did that we might want to make those costs transferable (e.g. carbon credits) rather than centrally figuring out the most efficient price for each individual.