Dispelling Revisionist Myths Regarding Spectrum Property Rights in the 1920s

Abstract

When assessing legislation and policies of the past, one must analyze the context in which they were developed. Failure to understand the past and the path to the present may lead to misunderstanding a regulatory agency’s structure and values. Such failures to understand the past have resulted in assertions that property rights and spectrum markets would have been superior to the regulatory system of the Radio Act of 1927. The author explores the relative efficiency implications of Federal Radio Commission regulation under the Radio Act of 1927 and a system of spectrum property rights. He observes that discussions of hypothetical spectrum property rights in the 1920s fail to take into account (1) the vast differences between the radio propagation conditions in the radio spectrum in use then and propagation in the bulk of the radio spectrum today and (2) the technical limitations of equipment at that time. Propagation conditions in the AM band make interference a diffuse problem. A single radio transmitter could impair the reception of dozens to hundreds of other stations; consequently, market transactions would have had to involve many parties. Hypothetical property rights systems also fail to consider directly the utility of the listening audience—the group responsible for more than 90% of the investment in the AM radio broadcasting system. The author concludes that spectrum property rights would have resulted in more radio service in urban areas, substantial loss of rural service, and diminished consumer welfare.