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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.
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.
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
You're right. Competition must not be hindered by regulators.
It must be encouraged by giving the regulators teeth to fight stagnation and collusion.
You can hold down the "B" button for continuous firing.
"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!
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?
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.
Does MaBell sound familiar? Standard oil? Microsoft? It's not unprecedented that people in the United States have been royally screwed by trusts, and the feds breaking them up improved the situation for everyone.
"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.
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.
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/
You're right. Competition must not be hindered by regulators.
It must be encouraged by giving the regulators teeth to fight stagnation and collusion.
Exactly.
Sitting on bandwidth licenses without using them is simply sequestering public airwaves for private use, by paying a license, but then failing to develop the resource entrusted to you. The FCC should perform a survey of idle licenses, and demand they be developed and marketed.
Hording or Failing to deploy should be (and probably is) a violation of the bandwidth license. (As precedent, Alaska canceled several North Slope Oil/Gas leases when the oil companies failed to develop the fields.) After all, a public resource was entrusted to these carriers to use for all of our benefit. Sitting on them while raising prices is not an acceptable outcome.
Sig Battery depleted. Reverting to safe mode.
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!
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.