Telstra has revealed the addition of almost one million new mobile services in the six months to December 2011, but Sensis revenues plummeted 24 percent in 12 months.
David Havyatt, head of regulatory affairs for AAPT has written a response to our column questioning the value of expert advise from economists in the regulatory debate.
You have again had a go at economists and repeated your two favourite economists jokes in ITWire. As I have tertiary qualifications in both physics and an economics, I'd like to defend economics in general as a science.
The application of all scientific theory requires the acceptance of some assumptions that make the use of the theory workable. For example, the simple physics of pulleys requires the assumption that there is no friction on the pulley. In fact, physicists today still happily use three different theories of mechanics: relativistic mechanics (both special and general), quantum mechanics and good old Newtonian mechanics They choose which theory to apply based on the conditions in question - if there high speeds or long distances then use relativity, if there are very small distances then use quantum mechanics - but to calculate the speed a car was travelling in a collision they will use Newtonian mechanics (yes, all those colliding billiard balls from high school).
Economics suffers because economists are incredibly careless about the consideration of the embedded assumptions in their theories. Primarily they start with neo-classical market theory and don't question sufficiently whether the preconditions exist. Secondly, most of them ignore the three strands of economics that might be better suited to the situation being evaluated. The first is the study of "imperfect" competition (though Rod Shogren dislikes this term because he believes this is "real" competition - and he is mostly right) in which the strategic interaction of the participants needs to be modelled.
The second is the joint fields of behavioural and experimental economics which tries to explain why and how individuals deviate from the 'homo econimus' view of a rational utility calculator. The third is institutional economics which attempts to allow for the underlying social rules and mores within which the market is trying to operate.
But in the specifics of things like fixed-to-mobile, the deviation can be due to which effects understood by neo-classical economics are modelled. So if one attempts to include "externalities" as Optus did, the question is whether all the externalities are included. For example, for mobiles there is both a subscription and a call externality, but often only the former is included. Additionally the externalities in the fixed line market should also be included.
You further go on to ask whether the CCC (of which AAPT is not a member) can afford an economist to respond to Jeffrey Eisenach. It is not only a question of being able to afford one, but also of being able to find one. The bulk of expenditure being on the side of incumbents means that any "rational" economist would specialise on the incumbent side of the market.
David Frost
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