Abstract
Other satellite communication systems have been established for the purpose of providing telecommunications services between areas where such services were non-existent or totally insufficient. The Eutelsat system, however, was not originally conceived to fill telecommunications gaps. In view of the extensive European terrestrial network already in place, the objectives of the system are to satisfy specific European telecommunications requirements and to enable the European aerospace industry to develop a full range of technologies so that it may compete in the world market. Therefore, it is essential that Eutelsat be as economically efficient as possible in order to provide a financial advantage over the terrestrial network.
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In its cruder versions, price discrimination based on ability to pay has been institutionalized into many aspects of economic life; for example, lower prices for children and senior citizens on public transportation and for theatre admissions; college scholarships based on a need criterion; and sliding scale fee schedules of physicians, lawyers and other professionals.
Marcellus Snow, International Commercial Satellite Communications: Economic and Political Issues of the First Decade of Intelsat, Praeger, 1976, pp 6568.
US Presidents Task Force on communications Policy, Final Report, US Government Printing Office, Washington, DC, 1968. The memorandum asserted that no natural monopoly conditions appear to exist in the provision of specialized communications via satellite and proposed to allow competition to act within well-defined limits necessary to preclude anti-competitive practices and to assure that the competition works toward the public interest [Snow (1976), pp. 10305].
For research underway see Marcellus Snow, Statistical Tests for Natural Monopoly Properties in International Satellite Communications. For presentation at Symposium on Explorations in Space Policy: Emerging Economic and Technical Issues, Washington DC, June 1986. Sponsored jointly by resources for the Future and the National Academy of Engineering, mimeo, forthcoming 1986.
A problem of detection arises, however. If competing systems are allowed to enter and are observed to attract traffic away from Intelsat, does this mean that Intelsat does not have a natural monopoly, or that is has a natural monopoly that is unsustainable? Neither theory nor empirical experience to date would appear adequate to answer this important question.
Marcellus Snow, Some Effects of Cost De-averaging by Intelsat, Consultants report to the National Telecommunications and Information Administration, US Department of Commerce, mimeo, 1979.
Suppose that Intelsat produces x units of voice traffic y units of data traffic and z units of video traffic at a cost C(x, y, z). a firm with the same cost function producing only x units of voice traffic would sustain cost C(x,0,0,); likewise, firms specializing in data and video alone would sustain costs C(0, y,0) and C(0,0, z) respectively. If Intelsat has sufficiently strong economies of scope (synergy, complementarity of production), then it can produce output combination (x, y, z) more cheaply than can its three specialized competitors in concert: Of course, if Intelsat has natural monopoly properties for this output combination, then this cost relationship afforded by economies of scope follows as a special case. The most common type of entry against a monopolist is often that of a small, specialized firm hoping that its advantages from economies of scale in individual product lines will overcome whatever economies of scope are enjoyed by the incumbent.
Further Reading
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Elizabeth E. Bailey and Ann Friedlander, Market Structure and Multi-product Industries, in Journal of Economic Literature, Volume 20, no. 3, September 1982, pp. 1,02448.
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William J. Baumol and David F. Bradford, Optimal Departures from Marginal Cost Pricing, in American Economic Review, Volume 60, no. 3, June 1970, pp. 26585.
William J. Baumol, John C. Panzar and Robert D. Willig, Contestable Markets and the Theory of Industry Structure, Harcourt Brace Jovanovich, New York, 1982.
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Don Coursey, R. Mark Isaac and Vernon L. Smith, Natural Monopoly and Contested Markets: Some Experimental Results, in Journal of Law and Economics, Volume 27, no. 1, April 1984, pp. 91114.
David S. Evans and James J. Heckman, Multi-product Cost Function Estimated and Natural Monopoly tests for the Bell System, in Breaking Up Bell: Essays on Industrial Organization and Regulation, edited by David S. Evans, North Holland, New York, 1983, pp. 12756.
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in The Intelsat Global System, edited by Joel L. Alper and Joseph N. Pelton, American Institute of Aeronautics and Astronautics, New York, 1984, pp. 25568.
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Marcellus S. Snow, Investment Cost Minimization for Communications Satellite Capacity: Refinement and Application of the Chenery-Manne-Srinivasan Model, in Bell Journal of Economics, Volume 6, no. 2, Autumn 1975, pp. 62143.
Marcellus S. Snow, Price discrimination and Economies of Scale in International Satellite Communications, in Economic and Policy Problems in Satellite Communications, edited by Joseph N. Pelton and Marcellus S. Snow, Praeger, New York, 1977, pp. 530.
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© 1987 Macmillan Publishers Limited
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Caruso, A. (1987). The European Telecommunications Satellite Organization. In: Satellites International. Palgrave, London. https://doi.org/10.1007/978-1-349-08103-5_6
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