28 January 2008

Rate flexibility and market power

This article over at USA Today points to one of the tensions in deregulation. Carriers, who gain pricing flexibility, will use it to maximize their competitive position and profits. In this case, it appears that the incumbents with market power are using nominal prices to motivate their customers to adopt bundles of services (such as voice, long distance, mobile and video). These bundles tend to lock consumers in to their services since it becomes much more costly to purchase these services individually. This is the same basic issue that I brought up earlier related to text message charges.

While it is hard to imagine that these services experienced large costs increases (they are software, after all), I would like to point out that the services indicated in the article are hardly essential, mainstream services. Given that, is there a need to regulate? How many "elderly and low income" families actually use these services?

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