A 'Characteristics' Approach to Content Regulation and Consumer Choice
Download 164.44 Kb.
|
A 'Characteristics' Approach to Content Regulation and Consumer ChoicePrepared ByH. R. GibsonDepartment of Economics The University of Newcastle CALLAGHAN NSW 2308 Ph: +61 2 4921 6750 Email: ddhrg@hunterlink.net.au Abstract Internet censorship is a controversial issue and the introduction of content regulation in Australia has generated a vigorous debate within the government, industry and the online community. This paper develops a characteristics based model for the analysis of consumer choice in response to three types of government policy. This paper analyses the impact of a policy prohibiting certain consumption activities, a subsidy for certain goods and an education and awareness strategy aimed at reducing information costs faced by consumers. This model is then applied to Australia's Internet content regulation scheme. It is argued that whilst only the prohibition elements of the policy may reduce consumers utility, subsidies and education campaigns will benefit some classes of Internet users more than others. Key Words Content Regulation, Consumer Choice, Derived Demand, Information Policy, Australia. Proposed Classifications K.5.2. [Legal Aspects of Computing]:Governmental Issues -- Censorship K.4.1 [Computers and Society]: Public Policy Issues -- Regulation
This paper attempts to construct an analytical framework for the analysis of the Australian government's content regulation scheme that came in to effect on 1 January 2000. It aims to provide insight into the implications of the policy by drawing on the characteristics approach to consumer choice developed by Lancaster (1991). In section 2 of this paper, the derived nature of Internet demand will be discussed. It will be argued that the demand for Internet services is a derived demand. Consumers derive utility from the Internet by fulfilling certain underlying purposes of usage. The extent to which these underlying purposes can be fulfilled will depend on the characteristics of these Internet services. The basics of the characteristics approach are explained in section 3 of this paper. This is then elaborated on in section 4, where the impact of three different government policies is considered. These policies are; a restriction on certain consumption technologies; a subsidy for certain goods or consumption technology; and a strategy to reduce the information costs faced by consumers. A characteristics based analysis of Australia's content regulation policy is then examined in section 5. This draws on the characteristics model developed in section 4 and examines three key aspects of the content regulation policy in Australia. Some avenues for future research will then be discussed in section 6. The Derived Nature of Internet DemandOne of the first features to note in relation to the demand for the Internet is that, as with telecommunications, the demand for the Internet is a derived demand. Derived demand is most commonly used by economists in the context of demand for inputs to the production process. It is known as a derived demand "because it depends on, or is derived from, the demand for the firms output." (Katz and Rosen, 1994) For example a firm's demand for labor or electricity flows from the contribution these inputs make towards producing the end products which customers of the business want. Thus, in relation to telecommunications services, Antonelli (1992) points out that increasingly telecommunications services are becoming a necessary input for firms to carry out production. Similarly, Hackl & Westlund (1996) argue that any theory of telecommunications demand should be developed from the theory of the firm and production, with telecommunications services viewed as an input into the productive process. Whilst this acts as a guide to avenues for analyzing demand for Internet services by businesses, it appears of lesser usefulness in achieving the main purpose of this paper - to examine the impact of a policy change on household end users demand. As distinct from business demand for goods and services, households in traditional economic theory are considered to obtain utility directly from the products they consume. [1] However in relation to telecommunication services, and in particular household demand for the Internet, it can be argued that household consumers do not derive utility directly from telecommunications services, but rather utility is derived from the uses to which they can be put. As Lamberton points out "collectors of antiques apart, who wants a telephone as such, separate from the use which it will or could be put." (Lamberton, 1994) Similarly, home Internet users are unlikely to derive utility directly from having a computer connected to the Internet. Rather, utility is derived from the uses that an Internet connection can be put, such as emailing friends, retrieving the daily news, purchasing books or paying bills. Consumers demand for the Internet is therefore derived from the need or functions that it fulfils. In previous research related to broadband forecasting and demand modeling, (BTCE, 1994), these underlying purposes were grouped in to four categories. These categories are as follows. 2.1 Entertainment In the widest sense, entertainment "includes all those services which occupy leisure time." (BTCE, 1994) In the context of the Internet, this therefore refers to use of the Internet, or its evolutionary successor, for the purpose of leisure. Examples of this could include using the Internet to play online games, viewing movies or listening to music, and viewing web sites for recreation. 2.2 Information This refers to use of the Internet for the purpose of obtaining or disseminating information. This could include distribution and retrieval of information from online databases for commercial or academic research, as well as distribution of information by government and non-government bodies as well as by individuals. 2.3 Communication "Communication services are taken as those where communication between two or more people is the principle purpose of the service." (BTCE, 1994) A variety of tools exist which allow Internet users to communicate with each other. These include email, various chat programs and systems and more recently, video-conferencing. One could expect there to be a certain amount of overlap between this category and the information category. 2.4 Transactional These are services which allow Internet users to purchase and sell goods and services over the Internet. A well known example is the use of the Internet to purchase books or music from online retailers. Other examples could include using the Internet to conduct banking and pay bills. As online business and e-commerce grows, a wider range of transactional services are likely to become available. These four categories can therefore be viewed broadly as the underlying purposes of using the Internet. They function as a context in which to view the reasons for use of the Internet and other telecommunications networks. A consumers demand for the Internet or particular Internet services can therefore expect to be related to how well such services help them to fulfill these underlying purposes. This will in turn depend on the characteristics of those services. What is needed then is a model of consumer choice and behavior, which can incorporate these underlying purposes into the model. The approach to be adopted here draws on the characteristics approach to consumer choice developed by Lancaster (1991). The Characteristics ApproachThe characteristics approach developed by Lancaster is based on the notion that the consumer "is not interested in goods as such, but in their properties or characteristics" (Lancaster, 1991). It is from these characteristics that the consumer ultimately derives their utility. A consumer for example, does not derive utility directly from a meal, but from the 'characteristics' of the meal such as its taste and nutritional value. (Lancaster, 1991). With a given budget constraint, consumers seeks the combination of goods that will give them their most preferred combination of characteristics. (Lancaster, 1991) That is, consumers will try to maximize the 'characteristics' they can buy with their money. The characteristics contained in a good or group of goods is objectively determined by the 'consumption technology' [2], which defines the proportions of the characteristics produced by a good. (Lancaster, 1991) If the consumer's utility function is separable, the consumer first allocates their budget optimally between broad groups of goods, and then optimizes again within these groups. (Lancaster, 1991) So for example, the typical consumer might first allocate their income between broad categories such as food, entertainment, communication, transport etc. The consumer repeats this process until they ultimately make a choice from within a particular 'goods group'. This is a defined as "a subset of goods possessing the same characteristics, but in different proportions, most of which [are]… not shared by goods outside the group." (Lancaster, 1991) The consumer then chooses from within the goods group, the good (or combination of goods if joint consumption is possible) which maximizes their utility at least cost. (Lancaster, 1991) The consumption choice can be represented diagrammatically by Figure 1 below. 
In Figure 1, let us consider the consumer's choice of goods within a goods group. The goods group here is defined by the characteristics C1 and C2 from which the consumer derives utility. There are three goods, represented by the rays G1,G2 and G3 respectively. These goods produce the characteristics C1 and C2 according to their consumption technology. The consumer faces a budget constraint such that if they spend their budget solely on G1 , they can obtain the combination of characteristics represented by point A. For goods 2 and 3, the points are B and C respectively. The intervals AB, BC and AC represent the characteristics which can be obtained using the individuals budget when consuming combinations of goods (G1,G2), (G2,G3) and (G1,G3). The consumer maximizes their utility by the combination of goods G1 and G3 represented by X2 since this places them on their highest indifference curve This represents the consumers efficient consumption choice. Other consumption choices, such as choosing point X1 , are considered to be an inefficient consumption choice, since they place the consumer on a lower level of utility. Download 164.44 Kb. Share with your friends:
|