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Mobile Operators: Creating Artificial Demand For Capacity?
An anonymous reader writes with an excerpt from Broadband Convergent: "We all have been taught the basics of supply and demand since high school. If demand is high, prices rise. If demand is low, prices fall. Simple, but true; yet this concept can be manipulated artificially if, as seen with the latest projections of mobile operators, that higher demand means higher prices. Are the dire predictions being promoted by operator's a true demand, as we have been told, or capacity hoarding that will lead to artificially higher prices and more profits for the mobile industry?"
The gist seems to be: operators have no incentive to maintain good infrastructure because it costs money and the artificial scarcity of capacity allows them to charge more.
After all, AT&T's shoddy network encouraged huge numbers to switch to other carriers the moment Apple allowed them to. In business having a poor product might allow you to gain in the short term but is a huge detriment in the long term.
Which is where competition is supposed to come in. If there is that much profit sitting out there, then there is an incentive for other players to enter the game, or for existing players to differentiate with high quality. Unfortunately, it often doesn't happen quickly, and sometimes needs some governmental encouragement. This is especially true with services that have such a high barrier to entry, like mobile.
This is why competition must not be hindered by regulators. If it's allowed then other entries into the market will drive down the price, seeing the potential to take marketshare away from the higher margin telcos.
Canada is a great example of this. Prices were stupid for years, then entrants like Wind and Mobilicity got in, often despite the best efforts of the regulatory-captured cftc, and have cut prices so you can now get unlimited everything (really unlimited) for $25.
In business having a poor product might allow you to gain in the short term but is a huge detriment in the long term.
That is, of course, until you and your competitors collude to keep prices high; then everybody (who isn't a customer) wins!
An enigma, wrapped in a riddle, shrouded in bacon and cheese
In theory, companies that produce shitty service and charge too much for it go out of business.
In reality, the government metes out frequencies in a bidding process that generally shuts out competition.
The alternative would be to close down the FCC and let people broadcast whatever they want wherever they want at whatever power pleases them. There are probably people who think this is a good idea, and won't believe otherwise until Anonymous gets a hold of a transmitter.
If I have been able to see further than others, it is because I bought a pair of binoculars.
This works as long as there are competitors that are providing sufficiently better service. If there's a market containing, only, say, three companies, and barriers to entry are sufficiently high to block any new firms from forming, it's entirely possible that all three would, individually, seek to keep capacity as low as possible and just assume that the others will do the same. It's a prisoners' dilemma, sure, but those don't always preclude unspoken collusion when the number of participants is sufficiently small.
Big business is only one step above big government in that at least big business has to give you something they created with capital, albeit a rip-off, sometimes, while big government gives you (or whoever they choose) some of the money that they confiscated from you (after bloat, largess and bureaucratic handling fees, of course.) Then, you go up the hierarchy with child molesters, lawyers, etc.
www.chihuahuarescue.com- Help to end dog abuse, abandonment and cruelty
This might have come as a sincere argument if not for the ad in your signature...
operators have no incentive to maintain good infrastructure because it costs money and the artificial scarcity of capacity allows them to charge more.
Which wouldn't be a problem except the government created the teleco monopoly by creating a resource scarcity, namely exclusive contracts, tower permits, etc. The cost of entry into the market is so high that there can be no new players except from related businesses who feel like blowing a few billion cutting the red tape will go over well with their shareholders.
#fuckbeta #iamslashdot #dicemustdie
"We all have been taught the basics of supply and demand since high school. If demand is high, prices rise. If demand is low, prices fall."
In that case, the author was poorly educated. The caveat "...in the perfect market" is missing; that is, where all players have perfect knowledge.
The so-called "law" of supply and demand can also be operated in reverse: keep prices artificially low and demand will rise; keep prices artificially high and demand will fall. Anyone who doesn't know this will not last long in business.
The basics of supply and demand that you've been taught since high school aren't really a complete theory of economics.
Breakfast served all day!
That's an extremely high cost business, unlike say Software, so they have to do something. Their profit margins are seriously razor thin and the Iphone made things worse, not better, from a profitability perspective. It's very complicated, but if you want companies to trash for gouging, the cell phone companies are barely getting by. You'd be better of posting stories on BANKING or HEALTH...industries that are *really* turning the screws on working people.
In ancient Rome, they would always say that food prices were too high, and there were ships full of Egyptian corn offshore, just waiting for the price in the marketplace to rise.
During the seventies the rumor was that Sixty Minutes had film of tank trucks of gasoline being dumped in the desert to keep prices high.
Now mobile providers are holding back on capacity in order to raise prices.
Sound familiar?
A traveler from the future:
This is not some crazy conspiracy. Normally as technology becomes cheaper, more efficient and more robust capability of that technology goes down. It's just a fact of life. Just look at the internet, we started with 56k dial up modems and then that was slowed down to 32k, then 16k, and as you all know most users now rely on the futuristic 8k modem. The same is true of hard drives, where we once enjoyed 30 terabytes drives those sizes have been going down ever since due to cheaper and more effective technology. I miss the days when I could store all 10 of those mp3 on my hard drive but you can't stand in the way of progress!
Collusion is illegal.
Well, thanks there, Capt. Obvious... hard to recognize you without the cape, lol.
In all seriousness, collusion is only illegal if A) someone notices, and B) the government decides to prosecute. For example, prior to the repeal of Glass-Steagall, it was illegal for a holdings bank to operate as an investment bank (and vice versa); yet that did not prevent Goldman Sachs from requesting (and receiving) a pass from the SEC to do just that.
Another example: the oil industry. In fact, I don't even really have to go into detail on that one; I think pretty much everyone who buys gasoline (which, consequently, is pretty much everyone) is fully aware of how the oil cartels collude to fix prices and get away with it.
In short, while you are 100% correct in principle, the reality of our economic situation is that those who can afford to circumvent the law, do.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
Collusion is illegal.
That's true, but it still must be investigated and prosecuted to prove it, and it sure doesn't seem like it's a high priority to the DOJ right now.
I mean, would you trust this Supreme Court with a case like this? They've gone full retard with their adulation of any major corporation these days, and for all we know, we could end up with another travesty like the AT&T Mobility v. Concepcion ruling.
What I don't understand about telco behavior is their simultaneous enthusiasm for dragging their feet as hard as possible on infrastructure buildouts/enhancements and service pricing and for pushing dubiously mature 4GLTE!!!zOMG 433453Gigabits! based handsets that get approximately 45 seconds of battery life, which would be just enough time to run through an 'unlimited' data plan were it not horribly throttled by congested backhaul...
Given the, um, impressive state of competition, sandbagging on service upgrades, sometimes even going backward on pricing, is pragmatic enough; but why are they accompanying that with a push toward devices that are vastly overqualified for the infrastructure, cost more, and deliver lousier user experience?
"In all seriousness, collusion is only illegal if A) someone notices, and B) the government decides to prosecute."
Nonsense. That's like saying murder is only illegal if you get caught.
Collusion might not get prosecuted, but it's still illegal.
And the oil cartels are not U.S. entities, so that argument is 100% straw-man.
The barrier to entry in the market is the reversal of the work that Judge Greene did to break up AT&T (the real one, not Southwestern Bell with lipstick). T-Mobile tried to get, via various acquistion and investment, a toehold. It's not working very well.
There is no old "Bell Standard" for quality of connection across the turf and geography of the US. No one can tell the telcos what to do to have minimum service qualities in any location for cellular data. The TCA helped remove a lot of jurisdiction by the various state public utility authorities to push it to Washington, where lobbying moneys could be more focused.
The hoarding effect is a great analogy. It's all about stockholder return and immunity from acquisition. It's not about service as the telcos are universally loated (in the US, anyway). The concept of free WiFi is being killed so as to provide further nails in the coffin. In the EU, free WiFi is mostly gone; in the US, it's tougher and tougher to find. Somehow, dammit, you're going to pay is the boardroom mantra.
---- Teach Peace. It's Cheaper Than War.
After all, AT&T's shoddy network encouraged huge numbers to switch to other carriers the moment Apple allowed them to. In business having a poor product might allow you to gain in the short term but is a huge detriment in the long term.
That can't possibly prove anything wrong, because it itself is wrong.
The secret has been out for over a year that AT&T did not lose any significant number of users to other iPhone carriers when exclusivity ended. They actually GAINED customers, and they GAINED more iPhone 4S customers than did Verizon or any of the other iPhone carriers.
So your premise is totally wrong.
The huge detriment you speak of, on the other hand is accruing to the carriers that gain the iPhone, but not for the reason you expect. Selling the iPhone is huge drain on a carriers bottom line.
According to CNN-Money: all carriers that carry the iPhone lose money on it over what they were making previously. If AT&T has a network problem it has been caused directly by the iPhone and iPhone users. From lame Infinion chipsets that brought the towers to their knees early, to the data sucking ways of the typical iphone user.
Between 2009 and 2010, Verizon averaged EBITDA service margin of 46.4% per quarter. In the first quarter that the iPhone went on sale, that fell to 43.7%. Last quarter, when Verizon sold a record 4.2 million iPhones, its margin plunged to 42.2%.
This is not to say I have any argument with the subject of this story, namely the suspicion that carriers are hording bandwidth and creating artificial shortage.
Sig Battery depleted. Reverting to safe mode.
Artificial scarcity is nothing new, nor is it a "violation" of the principles of supply and demand. Rather, it is a well-known exception, called monopolistic (or in this case oligopolistic) business practices, which are made possible by lack of competition.
In a situation like this, where prices are kept artificially high, there is little or no competition to jump in and undercut the other players. So regular market forces to not come to bear. There is nothing at all strange about this.
They whine about how much bandwidth users are using... yet they REQUIRE that you have a data plan if you have an iPhone (or other suitably "smart" phone, AFAIK.) Even if it's a used/not in contract one! If you get an old iPhone 3GS from a friend and stick a SIM card in it, AT&T says you MUST have a data plan. ($20/month minimum.)
Though I guess they're just using the low end to subsidize the high end, since you can get 10x as much data (3GB instead of 300MB) for 50% more ($30 vs. $20).
Maybe, just maybe, if they charged something vaguely resembling reasonable rates for data, their network capacity issues would go away.
Dear Slashdot: next time you want to mess with the site, add a rich-text editor for comments.
If demand is high, prices rise. If demand is low, prices fall. Simple, but true;
Well known, and simple, and often false.
The textbook model of supply and demand curves works under a set of very stringent assumptions that are often false. It requires rational agents, fine granularity of transactions, fine granularity of agents on both the supply and demand sides, isolation of the market in question from other markets, durable goods that can be withheld from the market, ...
The model ignores marginal costs, opportunity costs, asymmetrical knowledge, asymmetrical market power, ...
E.g., in markets for commodities with large fixed costs and small marginal costs, a reduction in demand often yields an increase in price. The suppliers divide fixed costs over a smaller number of transactions. If the remaining demand is sufficiently rigid, they can get the higher price, at least for a while. This phenomenon can lead to a further reduction in demand, further price increase, and a market failure at the end of the spiral.
E.g., if there is a sufficiently flat segment in the supply curve, and a large buyer knows about it, the large buyer will pay a price at the low end of the flat segment, even though the a priori demand curve intersects at a much higher price. The large buyer will not consider the isolated value of the commodity, but the marginal value of paying more, vs. other uses for that money.
These are just two of myriad examples where the simple "law of supply and demand" that everybody knows is false.
Mike O'Donnell http://people.cs.uchicago.edu/~odonnell/
ARE they colluding, though? Or just responding to price rises/drops very quickly and economically efficiently?
I mean, take a common situation of two gas stations at opposite corners at an intersection. For simplicity, we'll call them A and B. Doing this we eliminate disparty in local taxation (assuming a road isn't the dividing line between two towns/cities/etc), and assume for the most part, everything is equal. We'll also make the assumption that consumers don't have brand loyalty.
Now say gas station A drops their price 10 cents. Gas station B can decide to drop their price, or leave it be, or raise it. Gas station B observes - if A's traffic increases, B's drops, the obvious reaction is to drop the price 10 cents to match A's.
However, it's also possible that A's traffic increases, B's remains constant, which means the disparity isn't hurting business. In the case, maybe B might decide to RAISE prices a little bit, say, 2 cents. Or if A only dropped 5 cents, to riase by 5 cents (increasing the difference to 10 cents between the two).
Now look at it from A's perspective - B drops the price, picks up extra customers. A needs to decide if the loss in profit from selling cheaper is outweighed by the extra traffic. Perhaps the required extra traffic hasn't materialized, so A is making a loss (sell for less profit, make it up in volume) - making A consider raising prices or holding steady.
However, if B decided to not join in the price war, and customers still go to B such that B can raise the price, A would be leaving money on the table since B's making more per unit of gas. A rational business will then raise prices - perhaps still under B , but not much so. Or match prices.
The neat thing with gas stations is - the change in traffic is practically instantaneous - you'll know within minutes of changing the gas price if it was a good idea.
And the reason traffic to B, even though its more expensive, might not drop is easy - if A has more customers they can service, then people may see B as a more expensive alternative, but avoid waiting in long gas queues. Or maybe the difference isn't large enough to justify potential inconvenience of having to turn around.
Competition doesn't necessarily lower prices - it can lead to prices stabilizing to some arbitrary level. Depending on how easy it is for customers to switch between compeitors, it determines how closely prices track one another. If it's really easy (like gas), prices rise and fall pretty much simultaneously (the geographical are of which is determined by customers' willingness to go farther in search of cheaper gas). This applies too to TV and internet, and cellphones to some extent. But take something like food staples where customers might wish to stick with brand names rather than the considerably cheaper store brands.
Remember, in a perfectly functioning market, the prices will be the same amongst competitors to equalize supply and demand. New competitors might come in and increase supply, lowering prices, but that depends on how much capital investment is required - cellphones and gas stations being particularly heavy (equipment is expensive/haz-mat concerns).
And yes, prices rise faster than they fall, because a business that sees someone making greater profit by selling product more expensive will tend to have others selling at the higher price. Case in point - netbooks. They started at $200, then rapidly jumped to $300, then "premium" netbooks starts showing up costing $400, $500 or more (barging into low-end laptop territory), until the whole market collapsed with the tablet craze.
Heck, tablets are the same - they were released at $500, and everyone questioned why get one when you can buy an iPad. So they dropped to $400 and hovered there ever since (with the iPad being Apple able to command a premium).
Collusion is illegal.
Well, thanks there, Capt. Obvious... hard to recognize you without the cape, lol.
One would think Captain Obvious would always be easy to recognize.
I'm a good cook. I'm a fantastic eater. - Steven Brust
I think pretty much everyone who buys gasoline (which, consequently, is pretty much everyone) is fully aware of how the oil cartels collude to fix prices and get away with it.
Boy, are you naive. Republicans apparently believe that there is a free market in oil, and that the free market is not a global market. Otherwise, they would be laughed off stage when it's suggested that increasing domestic production of oil would affect gas prices in the US.
Give me Classic Slashdot or give me death!
Not sure why you even bothered posting all that garbage about gas stations. It's so obvious they're in collusion one way or another. Stations in any given area will always raise or lower prices almost simultaneously, and to the exact same price. This happens even with price increases or drops of $.20, $.30 or more. Occasionally you'll have a chain that's exactly 1 cent lower than the other gas stations in the area, but this is a slight exception that just proves the rule. A couple miles down the road, you'll find another set of stations doing the exact same thing, except the prices will be 10 cents higher or lower. You'll see this being done by all chain gas stations everywhere in the US. The only true exceptions are the rare Mom & Pop stations that are not franchises of some chain.
If they weren't in collusion, they would rarely have their prices set exactly the same, and they certainly wouldn't always be changing their prices at almost exactly the same times.
There is no -1 Disagree mod. Slashdot.org/faq defines mod options. USE IT.
The reality of our economic situation is that those who can afford to circumvent the law, do.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
Time to start warming up the divestiture hammer again!
the preceding comment is my own and in no way reflects the opinion of the Joint Chiefs of Staff
Gas stations raise or lower prices almost simultaneously precisely because they sell a fungible commodity. They are just keeping their notoriously low profits in line with their costs. If their gas costs too much, you won't buy their profitable sugar water and "food" they sell inside...
This issue is a bit more complicated than you think.
> To top it off providers like Exxon Mobile in particular structure their sales
That's one way to put it.
http://www.ucan.org/blog/gasoline_autos/gas_prices/gas_hogwash_it_all_about_supply_and_demand (how it works)
> If I were that guy I would make the gas prices as low as I possibly could, even if it butted up against Exxon's bottom line and forced me into $0.09 a gallon profit just to drag everyone else's prices down.
Do you remember the Los Angeles owner who's supplier cut him off for doing just that? (I can't find a link to the old story, but it was a featured report on NBC in Los Angeles a few years back) - I believe the current strategy is that a retailer is attacked legally, then disciplined by suppliers, then undercut. Big Oil always wins.
Any links you can find regarding oil companies running out the owners who attempt to subvert their price fixing, tend to disappear. This is real conspiracy theater stuff. Most link you will come up with are fringe/kook sites, but I think you would be able to dig up real evidence using some facts gathered from them (filtering the noise is the problem). Now here are some links, annotated as accurately as possible from a once-over. These few pieces took entirely too long to find as it is.
http://www.nuwireinvestor.com/articles/rural-gas-station-forced-to-close-due-to-rising-prices-57051.aspx (editorial?,no substantiation that I could see)
http://www.firingsquad.com/news/siteseeingarticle.asp?searchid=576&up=2&filterLevel=1&page=1 (no substantiation)
http://www.rickross.com/reference/rama_behera/rama_behera42.html (kook, no substantiation)
This isn't my bag, it's just something I accepted a long time ago. There are more important issues to focus on imo.
Often wrong but never in doubt.
I am Jack9.
Everyone knows me.
But many of the oil multinational corporations have their roots in the US, and are only too happy to manipulate our government with petrodollars. When Oil companies pass laws regarding their own regulation and dictate energy policy to our government (up to and including the taking tens of billions of dollars of corporate welfare at a time when they are making record profits), I would have to say its fair to say whatever illegal acts they conspire to do, there appears to be no interest from our government in holding them to account.
325D.71 UNLAWFUL GASOLINE SALES
Any offer for sale of gasoline by a retailer by way of posted price or indicating meter that is below cost, as defined by section 325D.01, subdivision 5, clause (3), is a violation of section 325D.04, except that the criminal penalties in section 325D.071 do not apply. In addition to the penalties for violations and the remedies provided for injured parties set forth elsewhere in this chapter, the commissioner of commerce may use the authority under section 45.027 for the purpose of preventing violations of this section. A retailer who sells gasoline at the same or higher legally posted price of a competitor in the same market area, on the same day, is not in violation of this section.
A retailer who offers gasoline for sale at a price below cost as part of a promotion at an individual location for no more than three days in any calendar quarter is not in violation of this section.
325D.01 DEFINITIONS sub division 5 clause (3)
(3) for purposes of gasoline offered for sale by way of posted price or indicating meter by a retailer, at a retail location where gasoline is dispensed into passenger automobiles and trucks by the consumer, "cost" means the average terminal price on the day, at the terminal from which the most recent supply of gasoline delivered to the retail location was acquired, plus all applicable state and federal excise taxes and fees, plus the lesser of six percent or eight cents.
So here we have a case where the minimum price is mandated. Add in the zone pricing for delivery and individual stations have basically a fixed predictable minimum price, they could charge more but most don't as typically stations make very little on gasoline sales (probably 8-9 cents a gallon in Minnesota). They make most of their money on inside sales of things like pop, cigarettes, candy, coffee, ice, chips, etc as most of these are high margin items especially fountain pop and coffee which can easily exceed 90% margin. If you want to complain about gas prices it is not the individual stations you should be mad at, it is farther up the supply chain in the refiners, terminals, shippers, and oil producers. For the record I worked at a gas station for years in high school and college where I made my way up to assistant manager and thus got to see all the various invoices, zone maps, daily reports, monthly reports, and other stuff.
Time to offend someone
You have a flawed idea of how they pay for gas. They aren't raising the price of gas to cover the truck that filled their existing supply. They are trying to get enough money from the sale of their gas to buy the next truck. Hence they have to hedge how much gas will cost when they need to get another truck. That's why sometimes large truck stops have lower prices because they don't have to forecast as far because they get such high turnover. It's easier to guess what the price of wholesale gas will be tomorrow vs predicting it next week.
Obviously YOU are the one who has no understanding of economics.
Yes it's an anecdote! Were you expecting original research in a Slashdot comment?