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malletto
join:2009-01-03
Purcellville, VA

malletto

Member

price fixing?

If 2 companies are quietly agreeing to price the same way (basically removing promotions) that should be illegal. Price fixing right? Now of course a company doesn't have to offer promotions but if they are communicating with each other and decide to act the same way, that can't be legal.
elefante72
join:2010-12-03
East Amherst, NY

1 edit

1 recommendation

elefante72

Member

Price fixing assumes collusion, which has been practiced many times in our past but is not what is going on here. Cable is an oligopoly and a mature market, and the behavior is TACIT COLLUSION. You are dusting off my b-school memories... If you are really interested, go look up Nash Equilibrium.

From Wikipedia:

In an oligopoly, firms operate under imperfect competition. With the fierce price competitiveness created by this sticky-upward demand curve, firms use non-price competition in order to accrue greater revenue and market share.
"Kinked" demand curves are similar to traditional demand curves, as they are downward-sloping. They are distinguished by a hypothesized convex bend with a discontinuity at the bend%u2013"kink". Thus the first derivative at that point is undefined and leads to a jump discontinuity in the marginal revenue curve.
Classical economic theory assumes that a profit-maximizing producer with some market power (either due to oligopoly or monopolistic competition) will set marginal costs equal to marginal revenue. This idea can be envisioned graphically by the intersection of an upward-sloping marginal cost curve and a downward-sloping marginal revenue curve (because the more one sells, the lower the price must be, so the less a producer earns per unit). In classical theory, any change in the marginal cost structure (how much it costs to make each additional unit) or the marginal revenue structure (how much people will pay for each additional unit) will be immediately reflected in a new price and/or quantity sold of the item. This result does not occur if a "kink" exists. Because of this jump discontinuity in the marginal revenue curve, marginal costs could change without necessarily changing the price or quantity.

*******Explaination...
The motivation behind this kink is the idea that in an oligopolistic or monopolistically competitive market, firms will not raise their prices because even a small price increase will lose many customers. This is because competitors will generally ignore price increases, with the hope of gaining a larger market share as a result of now having comparatively lower prices. However, even a large price decrease will gain only a few customers because such an action will begin a price war with other firms. The curve is therefore more price-elastic for price increases and less so for price decreases. Firms will often enter the industry in the long run

bobjohnson
Premium Member
join:2007-02-03
Spartanburg, SC

bobjohnson to malletto

Premium Member

to malletto
If both companies have plainly advertised that their $99 triple play was only good for a year and after that is $159. There is no collusion in not offering a promotion after you've reached a market penetration goal and the other company follows. Its always been the non promotion price and losing that customer doesn't hurt all that much.