Economic Report of the President 1994 - The American Presidency ...

merging hospitals averages fewer than 100 beds and less than 40patients per day over a 3-year period. Another is a safety zone forphysician networks (such as preferred provider organizations, orPPOs) that comprise no more than 20 percent of the doctors ineach specialty in the relevant geographic market, so long as thenetwork members share substantial financial risk. Mergers or jointventures by physicians that fall outside the safety zones are notnecessarily antitrust violations but will be evaluated individually todetermine their legality. The two Federal antitrust agencies havealso committed to reduce uncertainty by providing advice to healthcare providers on an expedited basis.Other government agencies have also taken steps to limit theexercise of market power. For example, a widely reported investigationby the Department of Transportation helped ensure that an establishedair carrier would not use anticompetitive practices to excludea new entrant.Government can go beyond simply preventing anticompetitivepractices; it can act to stimulate competition directly. Thus, the Departmentof Transportation has provided new airlines with assistancein complying with its regulations. Partly as a result of the department'sactions to promote competition, 18 new cargo, charter,and scheduled passenger carriers began service during 1993, and20 more new carriers are awaiting certification to begin passengerjet service.Spectrum AuctionsAs the Transportation Department's efforts to foster new air carrierssuggest, competition can be promoted by encouraging entry.The Federal Communications Commission (FCC) will soon seek topromote competition in this way by allocating portions of the electromagneticspectrum for telecommunications services. Legislationenacted in August 1993 authorizes the FCC to auction most of thenew licenses to use spectrum, and requires the FCC to begin issuinglicenses for personal communications services (PCS) by May1994. The allocation of spectrum to PCS will encourage competitionbetween new firms offering PCS and existing cellular providers.The auction mechanism will ensure that the spectrum goes to thoseprivate parties who place the highest value on it. The auction willalso raise billions of dollars for the government, by selling the rightto the use of a scarce public resource instead of giving it away.MORE EFFICIENT REGULATION OF NATURALMONOPOLIESEconomists have long recognized that competition will performpoorly in certain industries that are "natural monopolies" (Box 5-3). In Europe, natural monopolies have often been turned into governmententerprises. The traditional U.S. response is to impose175