Low Earth orbit (LEO) satellite systems are becoming an increasingly important component of global communications infrastructure, providing broadband access, enterprise connectivity, and direct-to-device services in competition with terrestrial networks. At the same time, orbital space is a congestible shared resource: satellite deployments increase conjunction risk and debris, imposing external costs on other operators. This paper analyses how these features interact by modelling LEO satellite broadband as a capacity-constrained oligopoly operating under an orbital congestion externality. We develop a two-stage model in which satellite operators first choose constellation size and research and development (R&D) investment, and subsequently compete in quantities subject to binding capacity constraints. Orbital congestion damages depend on aggregate satellite deployment, while operators are privately exposed to only a fraction of the resulting congestion risk. Three results emerge. First, oligopolistic competition and incomplete congestion internalisation generate distinct distortions: output and innovation are inefficiently low due to market power, while satellite deployment is excessive when firms do not face the full marginal social cost of congestion. Second, R&D interacts non-trivially with congestion risk through its effect on throughput per satellite, creating substitution between “more satellites” and “smarter satellites.” Third, regulatory instruments such as Pigouvian satellite charges or tradable conjunction-risk permits can correct deployment incentives but do not eliminate distortions arising from imperfect competition. These results highlight that congestion pricing and competition policy operate as complementary instruments in the governance of emerging satellite broadband markets, with implications for spectrum policy, launch regulation, and the management of shared orbital resources. • LEO satellite broadband is modelled as a capacity-constrained oligopoly. • Orbital congestion creates external costs that operators only partially internalise. • Market power can lead to excessive satellite deployment despite output constraints. • R&D incentives may amplify congestion and overinvestment in constellations. • Second-best regulation complicates Pigouvian taxes and tradable permits.
Chris Doyle (Tue,) studied this question.