Oligopoly competition between satellite constellations will reduce economic welfare from orbit use

Abstract

Orbital space enables many essential services, such as weather forecasting, global communication, navigation, Earth observation for environmental and agricultural management, and national security applications. Orbit use is increasingly defined by firms launching coordinated fleets—“constellations”—of satellites into low-Earth orbit. These firms operate in markets with few or no competitors, such as the market for broadband internet provision to rural areas. How will oligopolistic competition shape the allocation of orbital space? We analyze orbital-use patterns and economic welfare when two profit-maximizing firms operate satellite constellations with sophisticated collision avoidance systems. We compare this duopoly equilibrium to public utility constellations designed and regulated to maximize economic welfare from orbit use. We show that imperfect competition reduces economic welfare from orbit use by up to 12%—$1.1 billion USD—per year and distorts the allocation of orbital space. The nature of the distortion depends on the magnitude of constellation-related environmental damages. When damages are low, economic welfare is maximized by larger-than-equilibrium constellations. When damages are high, economic welfare is maximized by smaller-than-equilibrium constellations. Between the growing commercial and national interests in outer space and the importance of low-Earth orbit to space exploration, orbit-use management is likely to be a fruitful and policy-relevant area for economic research. We conclude with a discussion of future research directions in orbit-use management relevant to policymakers around the world.