Brian Lamb Interviews Thomas Hazlett about “The Political Spectrum”

C_SPAN cable

 

 

(Yale 2017)

Q&A with Thomas Hazlett Professor Thomas Hazlett talked about his book, The Political Spectrum: The Tumultuous Liberation of Wireless Technology from Herbert Hoover to the Smartphone, about the history and politics of U.S. communications policy. Mr. Hazlett served as chief economist at the Federal Communications Commission (FCC) in 1991-92.

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Herbert Hoover’s Radio Malware Turns 90

The Radio Act of 1927 has enjoyed a nice, long life. It’s past time for a retirement party.

| February 24, 2017

On February 23, 1927, Babe Ruth had still to hit 60 home runs in a season. Yet President Calvin Coolidge would that day sign a bill that would establish how radio spectrum—the “economic oxygen” of the emerging information age—would still be governed 90 years later. Markets would be pre-empted, no ownership of the “ether” would be permitted. Public administrators would dole out privileges to deploy wireless networks according to the “public interest.”

Today, the Radio Act is gasping, choked by its contradictions. While the system continues to drip out dabs of bandwidth when far fatter dollops would spur great leaps forward, the members of the Federal Communications Commission are celebrating the close of a year-long auction of radio frequency rights, fetching $20 billion in winning bids. This is the sort of market-based process the Radio Act was designed to avoid.

Over time, regulatory failure has thankfully given way to more open markets. The evolution of vibrant mobile data networks—nowhere prescribed or mandated in law—is an emphatic endorsement of the power of policy liberalization. Yet the ghost of Herbert Hoover, the driving force behind the Radio Act, still haunts progress, frequently placing needless obstacles in the path of competitive forces.

Chaos Theory

The fake news of 1927 was later summarized (and promulgated) by the Supreme Court. “Before 1927, the allocation of frequencies was left entirely to the private sector, and the result was chaos…. It quickly became apparent that broadcast frequencies constituted a scarce resource whose use could be regulated and rationalized only by the Government.” In fact, a property system, with first-come rights enforced by the Department of Commerce under a 1912 statute, maintained order and allowed AM radio broadcasting to flourish from its introduction—by KDKA, a Westinghouse station—in 1920. Hoover, as Secretary of Commerce, 1921-1928, defined the rules using common law precedents.

What troubled Hoover was that he had precious little discretion over who broadcast or what they said.

For instance, when Los Angeles evangelist Rev. Aimee Semple McPherson (whose Foursquare Gospel Church owned a station reaching hundreds of thousands) strayed from her frequency slot, sanctions were swift. “Order your minions of Satan to… open my station at once,” the minister telegrammed Hoover. “You cannot expect the almighty to abide by your wave length nonsense.” Alas, He did. And so did Aimee, who returned to her spot on the dial.

Anarchy did not reign. What troubled Hoover was that he had precious little discretion over who broadcast or what they said. Radio was scorching hot as a consumer product, with millions being sold and 1924 being declared “Radio Christmas” by Madison Avenue. It was universally seen as an explosive new social force, and its deep political importance—soon to play out in episodes as disparate as Franklin Roosevelt’s “fireside chats” and Adolf Hitler’s Third Reich mobilization—was instantly noted.

Political Spectrum

A coalition formed to seize the moment. Major commercial radio stations that had built-up impressive audiences and, by 1926, were forming networks such as NBC, saw a new “public interest” test for broadcasting to be money in the bank. Such barriers to entry could block upstarts and stifle extensions of the radio broadcasting band. At the same time, Hoover and other powerful policy makers, including the estimable Sen. Clarence C. Dill (D-Wash.), author of the 1927 Radio Act, sought to use licensing to gain leverage over broadcast content. In the asserted quest to control interference, regulators could impose an “equal time rule” and restrict various controversial views (by denying licenses when they were deemed to harm the “public interest”). Hoover spent years trying before finally succeeding in pushing through a Federal Radio Commission in the 1927 Radio Act.

In almost no time, 200 radio stations were forced off the air, nearly one-third of the total. They had flunked the “public interest” test despite being mostly non-profit, with owners including labor unions, universities, and municipalities. The new commission found that the commercial outlets were attracting broad, diverse audiences with uncontroversial entertainment, while owners with a point of view—like the activists behind WCFL in Chicago (with union ties) or WEVD in New York (dedicated to Socialist Party candidate Eugene V. Debs)—were creating “propaganda stations.” The latter were crushed.

As were new competitive technologies. When Edwin Howard Armstrong, a Columbia University professor and later a major in the U.S. Army, sought spectrum space for his revolutionary FM radio in 1934-35, the commission (identical in form, but operating with a name changed to the Federal Communications Commission) dragged its feet. The FCC professed concern that FM would not work as well as existing AM. While an initial and temporary FM band was assigned, it was abandoned in 1945 due to the FCC’s risible theory of sunspot interference. While Armstrong howled in protest, his invention was uprooted and destroyed. He committed suicide in 1954. Decades later, FM—when freed from its shackles—easily overtook AM in sound quality, content, and audience.

The chances of an auction for wireless rights, wrote two FCC members, were about equal to the odds on “the Easter Bunny in the Preakness.”

Economist Ronald Coase got interested in the spectrum question about the time that Major Armstrong was bidding it adieu. He found the government’s justification for central control “incredibly feeble” and theorized that a competitive market system would produce far greater efficiencies. He suggested regulators define private ownership in frequencies, and auction them.

When called to explain his ideas to the FCC, the first question was: “Tell us, Professor Coase, is this all a big joke?” There in the abyss of absurdity the proposal rested. In 1977, commission member Glen Robinson attempted to reprise it, but the idea was again mocked. The chances of an auction for wireless rights, wrote two other FCC members, were about equal to the odds on “the Easter Bunny in the Preakness.”

Liberalization

Alas, in 1994, the Bunny paid off big-time. Auctions, advocated by Presidents Carter, Reagan, Bush I, and Clinton, were finally authorized by Congress and launched by the FCC. As of the current bidding, the total government take is about $115 billion. But of greater importance, by orders of magnitude, is the expansion of spectrum use rights. What (some) wireless providers are allowed to do has been flat-out deregulated. “Flexible-use” rules permit rights holders to supply whatever technologies, applications, or business models their customers desire and shareholders will support. Competition selects out the winners. This has revolutionized, in particular, mobile wireless markets, where the reforms have gone furthest.

This comes as a blow to Herbert Hoover’s spectrum legacy, a regime of Mother May I? While Armstrong had to gain the favor of regulators for his techno-blast, and died trying, Steve Jobs had an easier path with the iconic iPhone, launched in June 2007. Apple did not have to beg the government for radio access. Instead, mobile carriers, by then equipped with flexible-use licenses, fell over themselves pitching offers to accommodate Apple. The tech innovator chose to effectively buy spectrum rights for its devices via partnerships with, first, AT&T USA, and then carriers around the globe.

Each network has jurisdiction over its airspace, and could approve or reject such offers. In this, it strives to protect radio users (i.e., its cellular subscribers). But, distinct from government actors, these private organizations suffer financially from over-protection.

Market rivalry has welcomed the iPhone, and simultaneously prompted massive upgrades in network infrastructure, advanced devices, and complementary applications. The “dominant” smartphones in 2007—made by Nokia and Blackberry—endured the agony of defeat in the creative destruction that followed. The Apple App Store and Google Play, based on the wildly successful mobile operating system, Android, now serve billions.

The social payoffs are ginormous. More spectrum would make them more ginormous still. The message has leaked to policy makers. In its 2010 National Broadband Plan, the FCC proposed to shovel additional “flexible-use” licenses into the marketplace. Regulators documented that, historically, such efforts take somewhere between six and 13 years, and that these lengthy delays stymie technological progress. With everyone, Republican or Democrat, talking up “infrastructure,” allowing wireless networks to expand with infusions of perfectly excellent—and largely idle—radio spectrum, is manna from Policy Heaven. Where, by the way, Ronald Coase is smiling.

Slouching to Our Wireless Future

The FCC’s 2010 plan targeted the television band for liberalization. It was not a bad choice. Originally set aside in 1939-1953, today’s television dial consumes 49 broadcasting channels. That’s 294 MHz, as much as the total bandwidth held by America’s two largest networks, Verizon and AT&T, combined. But the value of broadcasting as a video delivery system is three generations out of date—displaced first by cable TV in the 1970s and 1980s, then by satellite TV in the 1990s and 2000s, and now by broadband Internet (“over the top”) in the 2010s. Broadcast TV frequencies could be shifted to alternative uses, unleashing amazing new services, at virtually no cost to society.

By auctioning broad “overlay” rights, or by loosening existing restrictions on licensees, markets could expeditiously reconfigure spectrum models.

But the FCC admitted it did not have the political cojones to simply reauthorize licenses, moving “TV spectrum” to new flexible-use licenses. That laid bare the fiction that regulators were actually setting the agenda according to independent, “public interest” criteria. To resolve the impasse, the Commission adopted a two-sided auction plan initially proposed by FCC policy analysts Evan Kwerel and John Williams in 2001. First, TV station owners would state the prices at which they would sell their licenses back to the FCC. Then the Commission would take bids for new flexible-use licenses (allocated TV spectrum). The bids for the new rights would have to at least cover the costs of the TV license buy-outs.

There was a lot more to the process, including an act of Congress (in 2012) and millions in consulting fees for top economic theorists to design rules, procedures, and software. The chairman of the Commission opined that the process was a “Rubik’s cube,” a curious boast given that complexity is so often the enemy of good public policy. Alas, the FCC fell short of its own goals, to put 120 MHz into liberal licenses by 2015. Now the Commission hopes for 70 MHz by mid-2020.

Until the auction officially ends March 30, key details are unknown to the public. (Disclosure: As an economist, I am a consultant to a participating party and, under FCC rules, may not openly discuss bidding specifics until the “quiet period” is lifted.) But the basic regulatory debate was joined back in 2009 when the FCC triggered the policy clock: the FCC has failed to beat the six-13 year policy lag it decried. And, crucially, only about one-fifth of the TV band will be peeled away for flexible-use licenses; the vast majority remains locked up, set aside for the Killer App of 1952.

Better tools for liberalization have been used, and could dramatically expand this incremental gain. By auctioning broad “overlay” rights, or by loosening existing restrictions on licensees, markets could expeditiously reconfigure spectrum models. State of the art technologies could be deployed and radio waves utilized far more productively. Business deals, with rewards for cooperation, would incentivize the efficiencies the government sees available—but which elude policy makers in their overly complicated, too-centralized, execution of spectrum reform.

Unreality TV

Several TV station owners, including Sinclair, Tribune Media, Fox, and Gray, have revealed that they will be selling some of their licenses back to the FCC as per the current auction. They each declared that this would fail to cause “any material change” in their operations. This reflects the general unreality of TV off-air broadcasts. While new networks, including emerging 5G broadband systems, could turn TV channels into gold, the band remains largely walled off in allocations mapped out by administrators laid to rest years before the first Super Bowl was played.

Despite the cries when visionaries detailed the reforms that could rescue airwaves from such oblivion, Ronald Coase was right. Ambitious, market-oriented policies have worked. More would work better. They should not consume the “6-13 year delays” that the FCC has condemned in reports but has been unable to improve upon in practice. If the Easter Bunny can win the Preakness, it is time to bury Herbert Hoover’s big 1927 idea, and let the real sweepstakes begin.

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The Hill: Patients dying because of FDA inflexibility

Patients dying because of FDA inflexibility

By Thomas W. Hazlett – 05/25/16 05:08 PM EDT
via The Hill

 

On May 26, the Food and Drug Administration will decide whether to approve eteplirsen, a therapy for Duchenne multiple dystrophy (DMD), on a fast-track basis. The drug, made by Sarepta Therapeutics, is the first for this brutal disease, which strikes about 500 boys annually in the U.S. It shows up before the age of five, putting kids in wheelchairs by their teens and ending tragically in premature death. An advisory panel in April voted against approval of the medicine, 7-6. At the hearing, parents of boys afflicted by DMD became hysterical. They pleaded for the majority to reverse course and let their children try the medication. Continue reading

Data-Driven Modernization of E-rate for Wi-Fi in Schools

By: Sarah Oh

Around the time of the modernization order of the E-rate program in 2014, I published an empirical study[1] on distribution effects of program rules between 1998 and 2012.  I found that the old rules, particularly the discount rate matrix, had distribution effects that perhaps needed reform.  Since the Universal Service Administrative Company (USAC) abides by administrative order to run the E-rate program, it was a natural question to ask whether the rules were causing particular outcomes.

My data analysis showed that per-student and per-school estimates of cumulative internal connection funds were higher in New York, California and Texas than the other 48 states, including Washington D.C.  I chose to study “internal connection funds” which supports payments for new Wi-Fi equipment.  I found that large school districts in major cities benefited more than the smaller districts in suburb, town, and rural schools.

For instance, my estimates showed that funds to New York, California and Texas recipients amounted to an estimated $826 per student enrolled in the National School Lunch Program.  In the other 48 states, students in the same lunch program received less than half, at an estimated $302 per student.  The rules created disparities at the per-school level as well.  In New York, California, and Texas, schools received an average of $251,399 in cumulative funds, while the other 48 states received an average of $75,340 each.  These three states enroll approximately 14 million children in over 27,000 schools each year, which is less than half of the 38 million children in over 91,000 schools in the other 48 states.

There is greater need in New York, California and Texas than the other 48 jurisdictions.  For those familiar with the E-rate rules, an average discount rate of 80 in those states shows a higher level of need compared to 76 in the rest of the country.  However, New York students with a discount rate of 77 reaped far more funds than students in the other 48 states with a slightly better discount rate of 76.  For every pupil enrolled in the school lunch program in New York, an estimated $1,285 has been spent, while an estimated $302 has been spent per student enrolled in the same national school lunch program in the other 48 jurisdictions.

Funding discrepancies do not disappear by simply increasing E-rate funds.  The rules created distribution effects even though the discount matrix carefully incorporated school lunch program demographics and urban and rural locations.  Perhaps administrative resources at the school district level contributed to these outcomes.  The New York City Department of Education applied for and received $1.7 billion in E-rate internal connection funds over fifteen years, Los Angeles Unified School District $738 million, San Diego Unified $114 million, Dallas, Houston, and Laredo Independent School Districts $145, $141, and $89 million each.  School districts with larger operations perhaps benefited from greater administrative know-how and organizational resources able to navigate a complicated process.  Perhaps smaller school districts in other states are limited by smaller economies of scale.  Might an intermediary be created to help these smaller schools?

The FCC’s data-driven modernization order of December 2014 will improve broadband connectivity in schools and libraries.  A recent annual target by the FCC to distribute $1 billion for Wi-Fi internal connections infrastructure will connect more schools and school districts around the country.  Continued scrutiny could increase the effectiveness of Universal Service Funds by making sure funds are sent to smaller school districts around the country.

Sarah Oh is a graduate student at George Mason University, where she studies economics.   

The opinions expressed in this piece are those of the author and may not necessarily represent the view of the Aspen Institute.

[1]http://www.sciencedirect.com/science/article/pii/S030859611400113X

What principles of governance does spectrum policy need?

What lessons can be learned for spectrum policy from the management of other natural resources? Here, an expert on resource management says good governance depends on a transparent, rules-based approach that will minimise regulatory uncertainty. This stability is key to encouraging the necessary investment in networks.

Read the full research here.

IEP Conference on Spectrum Auctions Covered in TR Daily

The IEP conference from April 25th, Spectrum After Incentive Auctions, was covered in TR Daily by Paul Kirby. The entire text of the article appears below:

EXPERTS DEBATE WAYS TO IMPROVE GOVERNMENT SPECTRUM MANAGEMENT

TRDaily – April 25, 2014

Experts today debated ways the federal government could improve its management of spectrum, including providing more property rights over frequencies, imposing spectrum fees on government agencies, and allowing a new agency or independent entity to oversee the process.

The ideas were aired at a morning event sponsored by the Information Economy Project, which is currently a joint initiative of the George Mason University School of Law and Clemson University.

Blair Levin, a communications and society fellow at the Aspen Institute who led the FCC initiative that drafted the 2010 national broadband plan (NBP), spoke in favor of putting an agency similar to the General Services Administration in charge of all federal spectrum and imposing fees on agencies for their use. Over time, the amount of spectrum agencies use would be reduced, he said.

Mr. Levin discussed issues touched on in a white paper released recently by the House communications and technology subcommittee (TRDaily, April 1).

For example, he said, proposals to allow federal agencies to share revenues from auctions of spectrum they give up – similar to an incentive auction for those agencies – is not “a bad idea,” but he questioned whether it would succeed because agencies would know that Congress could rescind the benefit in the future. He also suggested that “sticks work far better than carrots” when it comes to federal agencies.

He said he opposed making auction revenues an explicit consideration in FCC auction design, saying it is “really bad policy.” He said such a policy would provide the FCC an incentive to “maximize scarcity value” in order “to maximize revenue.” He also said that “such a rule is an invitation to litigation,” which would delay auctions.

Richard Bennett, a visiting fellow at the American Enterprise Institute, proposed the creation of a Federal Spectrum Service, which would be an independent corporation like the U.S. Postal Service that would hold the licenses for federal spectrum. Under his proposal, federal agencies would be required to reduce their spectrum footprint within five years, while allowing agencies to expand “their mission” through newer technology. The spectrum given up could be used “for more productive uses,” Mr. Bennett said.

Michael Marcus, a consultant and former FCC official, complained that the Commission takes too long to make decisions in complicated proceedings. He said the FCC and the National Telecommunications and Information Administration should establish new technical advisory committees, and he said the Commission should create a new board to work on spectrum issues that are not controversial.

Tom Hazlett, the director of the Information Economy Project who is joining Clemson as an economics professor, said that the FCC should rely on a liberal licensing model for spectrum, which he said “can accommodate great change in the marketplace,” rather than making command-and-control decisions about whether particular bands should be licensed or unlicensed.

Harold Furchtgott-Roth, a senior fellow at the Hudson Institute and a former FCC Commissioner, suggested that wireless carriers may be hesitant to bid on AWS (advanced wireless services)-3 spectrum in the 1755-1780 megahertz and 1695-1710 MHz bands because of “rather vague and undefined concepts” on how they will coexist with federal government incumbents. A key question is how interference problems will be addressed, he said, adding, “I think the answer is no one knows.”

“I think private companies will bid, but I don’t think they’re going to bid an awful lot for that,” he added.

In the incentive auction, he said that carriers would be unwilling to invest too much unless the FCC reaches coordination agreements with Mexico and Canada – accords that he said should be agreed to before the sale.

Robert Kaminski, an analyst at Capital Alpha Partners, reviewed spectrum that the FCC has made available since release of its NBP and suggested that it will likely fall short of the goal of making an additional 300 MHz of licensed spectrum available by next year. He said the amount of licensed spectrum will likely only total between 145 MHz and 197 MHz, “under more optimistic scenarios.” Regarding the incentive auction, he predicted that the Commission would only be able to repurpose spectrum in the “low double digits” rather than the Commission’s original goal of 120 MHz.

However, Mr. Kaminski noted that unlicensed spectrum in the 5 gigahertz band and shared frequencies in the 3.5 GHz band would easily get the FCC past the 300 MHz band total.

But Tom Hazlett noted that in the NBP, the FCC detailed 300 MHz of licensed spectrum. As a result, he said, including unlicensed frequencies “is not apples to apples.”

Mr. Kaminski also said that beyond the planned AWS-3 and incentive auctions, there “is no real clear line of sight to more auctions.”- Paul Kirby, paul.kirby@wolterskluwer.com

Reprinted with permission of TRDaily

Skorup and Thierer’s Research on Cronyism Cited by Washington Post, SFChronicle, Businessweek, and The Daily Caller

A recent working paper recently released by the IEP’s Brent Skorup and the Mercatus Center’s Adam Thierer has generated considerable media attention.The Washington Post’s “Wonkblog,” the Daily Caller, the San Francisco Chronicle and the weekly newsmagazine Businessweek have all cited Skorup and Thierer’s paper, “A History of Cronyism and Capture in the Information Economy Sector,” which details the increased cronyism in the IT market caused by government regulation. Skorup and Thierer received additional press on their research when US News and World Report published an Op-ed written by the pair on the same subject.

Skorup and Thierer’s research and scholarship on cronyism has proved to be important due to the increased popular concern regarding the growth in lobbying expenditures among major tech companies in recent years. Observers have decried the increased focus on political influence as opposed to research and development in the industry. Skorup and Thierer have argued that this trend towards cronyism reflects recent efforts by government agencies to increase regulation of emerging technology markets. Skorup and Thierer offer an important contribution by challenging the popular narrative that government action is needed to combat cronyism. The impact of this argument can be seen in the Washington Post’s reference to their work.

Thierer and Skorup argue that skyrocketing lobbying spending proves the need for deregulation. “When policymakers dispense favors, they usually expect something in return,” they argue. Only by eliminating the regulatory schemes that allow policymakers to dispense favors can government eliminate the incentive to get into the lobbying game, they believe. But that may be easier said than done. Take spectrum policy, for example. Thierer and Skorup decry the “politicization of spectrum policy,” and advocate the use of auctions to take the politics out of spectrum allocation decisions. In their view, giving spectrum to the highest bidder eliminates the potential for favoritism.

Skorup Op-ed on Spectrum Crisis Appears in The Hill

IEP’s Brent Skorup recently had an op-ed piece published by the leading political newspaper The Hill. In the op-ed, entitled “The Spectrum Crisis is Upon Us,” Skorup identifies the excessive allocation of spectrum to federal government agencies, where such spectrum has been not used efficiently, as contributing to the current “spectrum crunch.” Skorup posits a few strategies for reallocating the misused spectrum to the private market. Skorup advocates for the current legislative efforts to “BRAC the spectrum,” a phrase referencing the Base Realignment and Closure Program that successfully closed underused hundreds of military bases. Additionally, Skorup suggests that creating a GSA-like agency to facilitate more efficient government use of spectrum could also serve as a viable method of freeing more spectrum for private use.

The op-ed can be found here. Additionally, Skorup has written a full-length paper on the same subject, available here.

Skorup Discusses Spectrum Issues in Heartland Institute Podcast

The IEP’s Brent Skorup recently sat down with the Heartland Institute’s Jim Lakely to discuss the diminishing availability of spectrum in mobile broadband networks. Skorup recently published a paper on the topic in which he argues that the federal government must sell spectrum to private mobile broadband providers in order to alleviate the “spectrum crunch.” Skorup offers specific policy proposals in his paper that would facilitate the most efficient transfer of spectrum from the federal government to the private market. The Heartland Institute is a Chicago-based think tank that promotes and researches free market policy.

In the podcast, which can be found here, Skorup discusses his findings and situates the issue of diminishing spectrum in the broader perspective of federal communications policy. Additionally, Skorup’s paper that is the subject of the podcast is available here.

Hedy’s Folly: Research on Spread Spectrum, Michael Marcus

Richard Rhodes’s Hedy’s Folly: The Life and Breakthrough Inventions of Hedy Lamarr, The Most Beautiful Woman in the World, describes the invention of spread-spectrum radio by “legendary film siren Hedy Lamarr, [and] avant-garde composer George Antheil.”

The author cites an article by Michael Marcus presented at the Information Economy Project’s 2008 conference on The Genesis of Unlicensed Wireless: How Spread Spectrum Devices  Won Access to License-Exempt Bandwidth.  Information Economy Project Visiting Scholar, Dr. Marcus, published his research in an article circulated with conference papers in Volume 11 Issue 5 of INFO: The journal of policy, regulation and strategy for telecommunications, information and media, on “Wi-Fi and Bluetooth: The Path from Carter and Reagan-era Faith in Deregulation to Widespread Products Impacting our World.” 

Rhodes writes, “Instead, in line with Carter and Kahn’s emphasis on deregulation for economic growth, Ferris looked for innovative technologies hampered by what his assistant Michael J. Marcus calls ‘anachronistic technical regulations.’  There was a reason for the regulations, Marcus explains: ‘In the 1970s the spectrum technology area was highly concentrated, with only a few major manufacturers: Western Electric was the near-exclusive supplier of the local and long distance telecommunications industry, cellular was in its experimental stage, and the regulatory status quo was rather acceptable to the small ‘club’ of major manufacturers serving the US market, all of whom were domestic companies.  While regulations prevented rapid innovation, it [sic] also generally prevented both new entrants and technological surprise from the few competitors…” Rhodes p. 206-07.

“If all this bureaucratic infighting seems obscure, what followed from it is happily familiar. ‘The rules adopted,’ Marcus writes, ‘had a much greater impact than any of [their] advocates could have ever imagined at the time.  They enabled the development of Wi-Fi, Bluetooth, the majority of cordless phones now sold in the US, and myriad other lesser-known niche products.'” Rhodes p. 209