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Wireless Duopoly Pricing Collusion Is Just Good Fun
Analyst: Pricing Collusion is 'Business at its Best'
by Karl Bode 08:38AM Wednesday Jul 11 2012
An editorial first posted over at the Wall Street Journal recently bubbled up over at GigaOM. In it, "management consultant" Rags Srinivasan talks about how AT&T and Verizon are, like most duopolies, just pretending to compete -- giving each other winks and nods when it's time to raise prices. The latest example of course is Verizon's new shared data plans, which jack up the price of data dramatically to offset a reduction in user voice minute and SMS consumption. AT&T's expected to now soon introduce pricing that's probably going to be worse, and according to Srinivasan, two duopolists engaged in pricing collusion is just good clean fun:
quote:
Why is this signaling legal? There is absolutely nothing wrong in these pricing plans or in their signaling. A marketer is fully within their rights to not offer a certain product version and let other players know about it. I also do not believe lawmakers and regulators should try to dictate otherwise. One, it does not eliminate competition. There are other service providers who can choose to provide cheaper voice plans.
Srinivasan ignores of course that Verizon and AT&T have effectively cornered the market, and while there is growth on the prepaid front, that's little more than a gnat to the nation's two largest carriers -- whose lobbying muscle has resulted in regulatory capture (read: they literally write telecommunications law in most states). That may be fun and games to Srinivasan, but it's anti-competitive collusion that results in consumers being absolutely ravaged when it comes to data pricing. Consumers certainly can't wait to see what kind of "creative" price penalties will be tied to AT&T's new shared data plans. If this is "business at its best," Mr. Srinivasan has some very low standards for excellence.

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FFH
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join:2002-03-03
Tavistock NJ
kudos:5

Not collusion - watching other guy then reacting legal

Collusion is when the execs of both companies get together and AGREE on how to set prices. Watching what the other does in the market with their price plans and then reacting to that is not collusion.
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Gami00

join:2010-03-11
Mississauga, ON

Re: Not collusion - watching other guy then reacting legal

no, what you're talking about is "price fixing".

collusion is the proper term for what we have now.
Wilsdom

join:2009-08-06
Since such an agreement is not legally enforceable, what's the difference? Not hard to understand that duopolies can't compete, because it is illegal for one to win, so they cooperate to increase prices every time.
sandman_1

join:2011-04-23
11111
quote:
col·lu·sion noun \k-lü-zhn\
Definition of COLLUSION

: secret agreement or cooperation especially for an illegal or deceitful purpose

I would say that this fits this situation perfectly. They are cooperating, that much is obvious, and same could be said about how they are deceiving the public into thinking they are competing.

FFH
Premium
join:2002-03-03
Tavistock NJ
kudos:5

1 edit

Re: Not collusion - watching other guy then reacting legal

said by sandman_1:

They are cooperating, that much is obvious

Is it obvious? It has gone to USSC multiple times and been decided that offering similar pricing plans does not constitute cooperation or collusion. Unless you can PROVE that they actually got together and planned the moves, you got nothing.

Ex - Gasoline prices move in lockstep but the industry has won in court over and over again that the similar pricing was a result of competition and not collusion.

Unless someone has memos or other documentation of cellular carriers agreeing to move in lockstep, this ridiculous accusation will go nowhere.

And all of this is separate from laws concerning monopolies. The Feds, if so inclined could go to court over that. But that isn't the same as colluding to coordinate & fix pricing plans.
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rradina

join:2000-08-08
Chesterfield, MO

Re: Not collusion - watching other guy then reacting legal

Set aside whether or not genuine competition determines the price of gas or cell phone services and think logically.

Doesn't it seem much more likely for a gallon of gas to be sold at similar or the exact same price than a cell phone plan? Albeit, some gas companies try to claim they have "super duper" additives that solve various problems ranging from a cleaner engine to extra performance. However, I don't think the most consumers have strong brand identity. If convenience isn't a factor, we still buy gas for $3.35/g vs. $3.39/g.

Doesn't it seem very unlikely that one of the duopolists doesn't try to grab more customers by offering significantly more of something on the cheap? Does anyone remember a price war between them?

elwoodblues
Elwood Blues
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join:2006-08-30
Somewhere in
kudos:2
Of course it's not illegal, when you have corporation friendly justices sitting on the bench.
sandman_1

join:2011-04-23
11111
"prove"? I might not be able to "prove" it with documentation but it is obvious to me and a lot of other people that they have a Gentlemen's Agreement of some sort, of which could of been orally made making proving it near impossible to begin with.

Gas stations can charge whatever they want for gas. There were a few that decided to charge 10 cents more in my area. Needless to say, they didn't get much business. But anyway, gas is pretty much priced as about as low as it can go. Gas stations don't make much off the pump and would rather you go into their convenience store to get extra things like soda or something to eat. That is why most have convenience stores to begin with. There is more money to be made that way.

Ut98Ex

join:2012-07-11
Simpsonville, KY
Sorry, I really hate to get into politics but that is funny that you say its not collusion and seeing your avatar. I'm thinking that is exactly what romney would say (i.e: the exact opposite of what is obviously happening) are you sure you are not working on his campaign?

Camaro
Question everything
Premium
join:2008-04-05
Westfield, MA
kudos:1

Capitalism at it's best

Enough said.
Mr Matt

join:2008-01-29
Eustis, FL
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Reviews:
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How quickly we forget.

In the 90's competition quickly forced dial up internet service providers to reduce the price of their service. I worked for an ISP and sat in on many planning meetings. The sales team went ballistic when they learned some jerk ordered a T-1 connection to the internet, a couple of phone lines some modems and a router and became a Dial Up ISP offering low prices because they had virtually no overhead. When I started working for the company they charged $25.00 per month for 14.4 Kbps internet internet access and they were working on a system to be able to bill customers for hours connected. By the time they worked out a system to bill for usage, there were so many competitors, offering flat rate dial up internet service, that they abandoned the idea of usage based billing.

AOL eventually abandoned charging by the number of hours connected and went to a flat rate pricing structure. The other source of heartburn was the cost of updating my employers POP's to keep up with advances in technology. There were several costly upgrades required to avoid loss of customers. POPS started out with 14.4 Kbps modems then 28.8Kbps then 33.6 Kbps then X2, K56 and eventually V.90 and V.92. It was very costly to upgrade POPS serving 50,000 customers each time there was an advance in technology, the only other choice was to not upgrade and lose market share.

By the time Telephone Companies and Cable Television companies began offering high speed broadband the most dial up internet service providers were charging $12.95 per month or less for internet access. The other thing to remember was that the objective of the designers of DSL and DOCSIS technology was to require NO NEW WIRES! The cost of deployment of the new technology by cable and telephone companies was nominal.
openbox9
Premium
join:2004-01-26
Germany
kudos:2

Re: How quickly we forget.

said by Mr Matt:

By the time Telephone Companies and Cable Television companies began offering high speed broadband the most dial up internet service providers were charging $12.95 per month or less for internet access.

How'd that work out for those thousands of ISPs?
WhatNow
Premium
join:2009-05-06
Charlotte, NC
Reviews:
·Time Warner Cable

Re: How quickly we forget.

MR Matt is right upgrades are expensive. Sprint and T-mobile should have too many customers because they are cheaper but people decide to go with the big two. A lot of people go with the cheaper providers and hate the service. Not that they don't hate the big two providers.
You don't have to have a cell phone mankind got alone with out them for many thousand years. It is something you want to have so you have to pay up.

I am willing to bet if there were 10 equal sized mobile companies the service would be bad because none of them could afford the upgrades and networks.

The phone companies quit expanding their rural DSL internet expansion when cable got in the internet business in town. The phone companies no longer had the extra funds to expand to areas with 5 or 10 customers per square mile.
openbox9
Premium
join:2004-01-26
Germany
kudos:2

Re: How quickly we forget.

said by WhatNow:

MR Matt is right upgrades are expensive.

Of course they are. I'm continually amazed that so many people believe that competition in capital intensive markets would spur a race to the bottom for consumer prices.
axus

join:2001-06-18
Washington, DC
Reviews:
·Comcast

I disagree that there is no real alternative

Sprint is pretty big, T-mobile isn't far behind. This isn't nearly as bad as broadband internet access, where you have Telco VS. CableCo who aren't building any new lines.

As long as they are putting up new towers, rolling out faster data rates, let them keep doing what they're doing. People who want to save money can use T-mobile, Sprint, or smaller providers.
tmc8080

join:2004-04-24
Brooklyn, NY
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2004-2008, the cell analog to digital, to data transition

The seeds of where we are today were sown back in the George W Bush Administration. So much deregulation and unattended regulatory posts were rife with letting companies do whatever they pleased, be it illegal, corrupt or plain old bad for the consumer. There's also plenty of blame for Obama's fed as well, since many of these agencies just got rubber stamped from 2008 - 2012. It took significant embarrassment to become public from 2010 onward (aka the political season) to have some of the deck plates re-arranged.

Many of these fears crystallized when AT&T wanted to gobble up Tmobile. Very little can be accomplished ONLY with rearranging the spectrum deck-plates. Smaller companies have virtually NO footprint to compete against the 2 major national carriers. The power of 50+ million wireless subscribers have no real alternative and this can be laid down squarely on deregulation from 2004 - 2012, when much of the focus (if any) was on examining whether cable & telcos would play nice and compete... and we all know how that turned out too..

93388818
It's cool, I'm takin it back
Premium
join:2000-03-14
Dallas, TX

The way

this article (and op-ed by Karl) is written, no carrier can do anything regarding price without baseless claims of collusion.

Company A makes a pricing change.
Company B later makes a price change.

Collusion? Hardly. When you hear hooves, don't assume it's zebras Karl.
--
"To be sincere, you don't have to know anything, you just say whatever makes you feel good and spin and smug circles in your tiny fucked up little head, happy as long as you're true to yourself. In other words, Sincerity is bullshit!" -Penn Jillette

elwoodblues
Elwood Blues
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Somewhere in
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Re: The way

If it was true competition and Verizon jacked up their prices, you would think AT&T would leave it, so that those that didn't like the price increase would jump.

We have the same problem in Canada, when one company reduced their calling area, the rest followed.

I will agree that they're not colluding, but it's not competitive, and frankly its a very fine line before they have crossed over.
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93388818
It's cool, I'm takin it back
Premium
join:2000-03-14
Dallas, TX

Re: The way

said by elwoodblues:

If it was true competition and Verizon jacked up their prices, you would think AT&T would leave it, so that those that didn't like the price increase would jump.

We have the same problem in Canada, when one company reduced their calling area, the rest followed.

I will agree that they're not colluding, but it's not competitive, and frankly its a very fine line before they have crossed over.

It's my opinion that as long as people keep signing up, en mass I might add, then the prices are competitive.
--
"To be sincere, you don't have to know anything, you just say whatever makes you feel good and spin and smug circles in your tiny fucked up little head, happy as long as you're true to yourself. In other words, Sincerity is bullshit!" -Penn Jillette

ctceo
Premium
join:2001-04-26
South Bend, IN
Reviews:
·Virgin Mobile Br..

Inherency

Ahhh. The problems with free-enterprise. It works to promote monopolization and we try to prevent it from happening. Nothing like going against the grain all the time, huh.

I see price collusion all the time. How else would 4-6 different gas stations manage to stay afloat on/near the same intersection or stretch of road? It's called price collaboration. It's not limited to gas stations anymore. Now we have production companies, movie studios, holdings firms, phone/cell providers, stores. The list goes on and on.
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