Enterprise in orbit : the supply and demand for communication satellites, 1964-1992
The objective of this study is to develop a general understanding of the evolution of the commercial communication satellite industry. Initial information classifies the industry as an oligopoly with the vendors as price setters. The approach to this thesis is to examine the supply and demand of satellites as a capital good. Assuming the demand curve slopes downwards, the study examines the change in the price of a standard unit satellite. The underlying motivation is the conventional identification problem. Over three generations, the technical attributes of communication satellites are advancing. Taking the hedonic regression approach, the price of satellites is shown to decrease over time. Exploring the relationship between price and complexity, it is demonstrated that in the short-run the oligopoly structure of this industry is accompanied by a simple form of cost-plus price-setting. This finding solves the identification problem, so that simultaneous equation methods are not required. Assuming a constant degree of monopoly power in the industry, changes in multi-factor productivity are estimated. Productivity growth increases until 1980, but decreases slightly afterwards. The learning coefficients estimated for this industry are smaller than those found for the airframe industry. The fall in quality-corrected prices, however, is not big enough to support the interpretation that the expansion of satellite capacity was due to supply shifts along a stationary market demand schedule. Factors driving demand lead to a faster rate of expansion outside the original western world, but in the second half of the period, the ability to use software data compression moderated the rate of growth of demand for new satellites. The study explains the adjustment of the stock of satellite capacity in response to the desired stock: the speed at which countries adjust their stock depends on their characteristics and regional profile.