LegoPower77
Abecedarian
Premium
join:2002-08-03
Arlington, VA
| reply to lesopp
Re: Cry baby monopolists
You make a good point, regulations are nothing more than barriers to entry. However, I disagree that so-called "less than cost" pricing should be illegal: people should be able to freely bargain in the open market. Besides, predatory pricing is a chimera, anyway.
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"Lunches don't get free just because you don't see the prices on the menu. And economists don't get popular by reminding people of that." --Thomas Sowell |
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lesopp
join:2001-06-27
Land O Lakes, FL
1 edit | Without fair pricing protection an RBOC could use its vast monopoly generated financial power to undercut a muni and drive it out of business.
They have already claimed to numerous utility commissions what their costs are, and what their minimum prices should be to realize a profit. To go any lower than their claimed costs would only prove they had lied all along. |
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DonLibes
Premium,ExMod 2001
join:2003-01-19
| reply to LegoPower77
said by LegoPower77  :
You make a good point, regulations are nothing more than barriers to entry. However, I disagree that so-called "less than cost" pricing should be illegal: people should be able to freely bargain in the open market. Besides, predatory pricing is a chimera, anyway.
Then how do you prevent companies (and munis) with plenty of cash from taking short-term losses (due to temporary low rates) in order to drive out competition? |
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LegoPower77
Abecedarian
Premium
join:2002-08-03
Arlington, VA | Market contestability.
And the way to make markets contestable is to keep the government's greasy mitts out of business. |
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DonLibes
Premium,ExMod 2001
join:2003-01-19
| said by LegoPower77 :
Market contestability.
And the way to make markets contestable is to keep the government's greasy mitts out of business.
I don't see how that stops the scenario I brought up: two companies, one of which has the cash to drive the other out of business simply by dropping its rates long enough. |
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LegoPower77
Abecedarian
Premium
join:2002-08-03
Arlington, VA
| That is simply not a feasible business practice. It's been tried before and those who do it end up getting their nose bloodied by it.
One reason is that say, company A drops its price to where it's taking a loss on production, company B can just stop production (economists can draw out the supply and demand curves where this takes place) and shut down until company A exhausts itself and it is forced to raise prices back up to "normal" rates.
Another reason is arbitrage. Product A is produced at output that incurs a loss, company B can simply buy product A and store it until again, company A is exhausted.
If company A is somehow miraculously able to drive company B out of bid'ness, the losing company's assets just don't disappear into thin air so they are still available for competitive use. (A bankrupt airline's airplanes don't self destruct just because the company files cpt 11.)
Now many will say that's all well and good, but telephone and sundry utilities are a different case. That's true as far as regulations and other artificial barriers to entry exist, but even in high-sunk cost markets (such as say, a gas pipeline or a broadband network), if there is not a lot of red tape, contestability is enough to keep it competitive.
That all being said, your whole premise is off because of the inherent problems of going to some regulatory board to enact by fiat a return on investment profit (ROI) output level. The problem with ROI pricing is that setting up a protected company (for the sake of stability) often stifles innovation and raises prices. (Nobel prize winning Vernon Smith writes an article on such regulation here.)
In reading that article, it's easy to see how the same analysis extends to telephone, broadband, basically any public utility. Also, as it was written in '96, it predicts the dire outcome of such ahem, "deregulation" as was attempted by California a few years ago.
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"Lunches don't get free just because you don't see the prices on the menu. And economists don't get popular by reminding people of that." --Thomas Sowell |
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lesopp
join:2001-06-27
Land O Lakes, FL
| I would agree if you were talking to large companies like Verizon competing with Bell South for the same customer base. Your theory becomes flawed when a small muni serving an area with say 20,000 potential subscribers is competing against a Verizon sized company. The large corporation will have greater cash reserves and a significantly larger credit facility than the muni. There is simply no way a small muni could stop production and since we're talking no regulation line sharing would cease to exist, thus buying the competitors product is not an option. Forcing the muni out by under pricing would be a real threat in a completely unregulated environment. Imagine if the RBOC and Cable CO colluded to fix pricing, the muni would die even faster.
Isn't this pricing issue something that is already addressed in Anti Trust laws? |
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BosstonesOwn
join:2002-12-15
Everett, MA
clubs:
 ·Comcast
| said by lesopp :
I would agree if you were talking to large companies like Verizon competing with Bell South for the same customer base. Your theory becomes flawed when a small muni serving an area with say 20,000 potential subscribers is competing against a Verizon sized company. The large corporation will have greater cash reserves and a significantly larger credit facility than the muni. There is simply no way a small muni could stop production and since we're talking no regulation line sharing would cease to exist, thus buying the competitors product is not an option. Forcing the muni out by under pricing would be a real threat in a completely unregulated environment. Imagine if the RBOC and Cable CO colluded to fix pricing, the muni would die even faster.
Isn't this pricing issue something that is already addressed in Anti Trust laws?
Kind of what your seeing now in the cable vs dsl debates cable pumps the bandwidth up and dsl lowers the prices. They are competing for 2 separate entities. I'd imagine the same would happen on the muni side as well.
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This package does not contain a winner... |
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