One method of measuring substitution between two products is to estimate a demand system and then calculate the implied diversion ratio, the fraction of lost demand of one product that substitutes to the other product. Through Monte Carlo simulations, I find that measurement error and misspecification cause substantial bias in this kind of estimate. Bias in both is driven not by error in the estimated choice probabilities but by error in the joint distribution of diversion at the individual-level and each consumer's contribution to overall switching. These results suggests estimating diversion ratios in this way requires special attention to data quality and the properties of the demand specification.

The U.S. Federal Communications Commission (FCC) is responsible for regulation of the communications marketplace and for management of the nation’s non-federal radio spectrum. During the past year, FCC economists have evaluated competitive changes in the satellite marketplace—including an analysis of the recently approved Viasat-Inmarsat and Eutelsat-OneWeb mergers. FCC economists also worked on the novel Broadband Data Collection and developed drive-testing methodologies in several proceedings. Further, FCC economists continued to work on the 988 Suicide & Crisis Lifeline. Finally, FCC economists continued to work on issues in broadcast station ownership.

The U.S. Federal Communications Commission is responsible for regulation in the communications marketplace and for management of the nation's non-federal radio frequency spectrum. During the past year, FCC economists helped develop efficient mechanisms for making available more flexible-use spectrum for the deployment of advanced broadband technologies; developed two new universal service funding mechanisms that aim to close the digital broadband divide; and, through careful analysis of firm cost data, contributed to a renewed effort by the Commission to develop price caps for interstate calls on prison inmate calling services. FCC economists also contributed to the Commission's extensive response to COVID-19.

The Federal Communications Commission is responsible for federal regulation in the telecommunications and electronic media sectors, and for management of the nation's non-federal radio frequency spectrum. During the past year, Commission economists contributed to the agency's ongoing efforts to use market-based mechanisms-such as auctions-to allocate spectrum and distribute universal service subsidies efficiently. This includes repurposing broadcast television spectrum for more efficient use by wireless service providers through the recently concluded Broadcast Incentive Auction and structuring auction mechanisms to promote efficient allocation of universal service subsidies for the increased build-out of mobile wireless and fixed broadband service in unserved and underserved areas.

A key policy question is: how high an inflation rate should central banks target? This depends crucially on the costs of inflation. An important concern is that high inflation will lead to inefficient price dispersion. Workhorse New Keynesian models imply that this cost of inflation is very large. An increase in steady-state inflation from 0% to 10% yields a welfare loss that is an order of magnitude greater than the welfare loss from business cycle fluctuations in output in these models. We assess this prediction empirically using a new data set on price behavior during the Great Inflation of the late 1970s and early 1980s in the United States. If price dispersion increases rapidly with inflation, we should see the absolute size of price changes increasing with inflation: price changes should become larger as prices drift further from their optimal level at higher inflation rates. We find no evidence that the absolute size of price changes rose during the Great Inflation. This suggests that the standard New Keynesian analysis of the welfare costs of inflation is wrong and its implications for the optimal inflation rate need to be reassessed. We also find that (nonsale) prices have not become more flexible over the past 40 years.

Signal quality is a significant contributor to the overall quality of wireless telephone service, which competitive analyses often overlooks. To understand the competitive impact of signal quality investment on further consolidation in this industry, I use a market research survey of choice of wireless service provider and a government database on transmission base stations in Connecticut. Dropped call rates and local coverage improve as base station density increases, so I treat base station density as an endogenous product characteristic and relate it to the local value of wireless services. I find a marginal base station contributes a median 0.15% increase in own market share and a median 0.03% decrease in rival market share. Marginal base station costs are implied to be substantial, so if these costs can be effectively reduced through network integration after a merger, the merging firms and consumers can both benefit through increased base station provision. If such integration is not possible, consumers lose due to either a loss in variety of products or reduced incentives of merged firms to produce quality. These results suggest that merger review must pay careful attention to the potential for network integration in wireless and related industries.