5. Government Regulation in Relation to Other Factors
Many other factors also contribute to market structure and the development and adoption of technologies. It is the web of interactions among these various factors that ultimately determines the direction of the industry and the fate of technologies.
Government regulation in relation to other factors:
Regulation and standardization:
A standard is a set of accepted protocols which define the rules of
interaction among systems. In the telecommunications industry, many
products and services exhibit positive network externalities, meaning
that the value of a product or service depends proportionally on the
number of users using something compatible. Thus, it is important to
have compatibility among the different systems in order to extract
network externality. In these cases, the government may choose to
mandate standards by initiating standards collaboration organization.
A successful example of this is the VHDL software language for the
design of integrated circuit. It was initiated by the Department of
Defense in 1981 to address the hardware life-cycle crisis. In the
next few years, Intermetrics, IBM and Texas Instrument worked on
creating a baseline language, which eventually grew into VHDL, and was
transferred to IEEE. Another example is the cellular telephony
standards, where the United States and Europe have contrasting
approaches. The GSM standard is the only one used throughout the
entire Europe to ensure compatibility in different countries. In the
U.S., however, there are many competing standards, and it remains to
be seen whether there will emerge a winner.
Regulation and pricing:
In a perfectly competitive market, price is determined by the supply
and demand of the market. But there are certain services such as
telephony which are considered necessary for everyone to ensure
societal well-being. For example, after the break-up of Ma Bell in
the early 1980s, the government has regulated pricing in this industry
by requiring long distance carriers to pay local telephone companies
access charges, which are then passed onto the customers. These
charges are then used to subsidize local telephone services to ensure
low rates for rural and other high cost areas, which otherwise would
be expensive. This policy of cross-subsidization has long been deemed
senseless by economists and in recent months MCI has been placing ads
campagning for eliminating this access charge. The FCC has just
announced plans to reform telephone pricing which will initiate radical
Regulation and inter-organizational structure
The government can have direct impact on inter-organizational
structures by direct rulings such as imposing anti-trust laws.
Indirect impact includes deregulation, which has fiercely increased
competition in the telecommunications industry. In order to survive
and prosper in such a competitive market, we have seen a tremendous
increase in the number of companies merging or forming alliances after
the Telecommunications Act of 96, notably the alliance of MCI and
Britsh Telecom, and the mergers of several Baby Bells.
Industry fragmentation can also occur with deregulation, such as the proliferation of providers in voice, data and video services. This may indirectly affect inter-organizational design when it is desirable to integrate fragments and diverse technologies.
Regulation and collaborative design
Regulation may have an indirect impact on collaborative design technology. For
example, several Silicon Valley cities got together and wanted air quality
to improve at a certain rate. They threatened companies with imposing
restriction on the number of cars in their parking lots, in an effort to
encourage employers to consider "commuter alternatives", such as telecommuting.
This may encourage the effective use
of collaborative design technology by telecommuters to work just as
efficiently at home as at work.
The Telecommunications Act may also indirectly impact collaborative design by allowing vertically integrated collaboration of products and technologies to compete in new markets. An example of this would be the cross-ownership of telephone and cable companies.