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Old Media Policy Failures, New Media Policy Challenges

Jun 2009
Working Paper
By  Bruce Owen

This paper deals with two related subjects. The first is the failure of economic analysis to trigger elimination of welfare-reducing public policies affecting the older mass media technologies, such as broadcasting. The second is some speculation about policy issues that may continue or arise in the future given the technical characteristics of the new broadband media, combined with advances in social psychology, neuroscience and behavioral economics.

I draw two principal conclusions. First, the failure of economic analysis to stimulate fundamental reform of media regulation is largely due to the fact that policy makers have greater incentives to focus on the allocation of economic rents among interest groups than to promote consumer welfare.

Second, it is clear that IP-based technology is replacing old media such as newspapers and broadcast stations. The technology has the potential to greatly enhance competition and diversity, and to reduce the cost of access by consumers and suppliers to each other. However, regulation is not likely to be reduced, because a whole new rationale for media regulation is being developed. The new rational will be a market failure—adverse welfare effects of competitive media content responsive to consumers’ cognitive impairments.