How come competition hasn't driven down the cost of cellphone plans?
Asked by
figbash (
7483
)
October 26th, 2008
I would have thought that by now, cellphones and cellphone plans would start dipping in price, but they actually seem to be increasing – including text messages etc. and prices seem to be fixed. Am I missing something basic about economics?
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7 Answers
There is a term called “spontaneous collusion” that addresses this. Basically, so few firms compete in this space (the barrier to entry is high) that it is an oligopoly.
They legally can’t collude, but they do. They don’t really want to compete on price, so they don’t.
A good example of this is Coke vs. Pepsi. Both are sugar water and they make buckets of cash selling a can that is 4 cents to make for 70 cents. They don’t compete on price. They have colluded to come up with a fixed price for their product and they use advertising to gain market share. Safeway Select is 25 cents per can. It is the same stuff.
Yeah, cell companies don’t compete, they coexist peacefully. You can’t just randomly start up a cell company and charge less.
@JP – GA! One question, though… 70 cents? 25 cents? Are we talking buying in stores or out of vending machines? Is there that big of a difference between Canadian pop prices and The States?
Last time I checked it was 75 cents for a can (12oz) of Pepsi at a vending machine. A generic at the machine next to it was 35 cents. I actually prefer the generic over Pepsi or Coke.
The prices inside stores get more complicated. Last time I was at Safeway they had 2 Liter bottles of Pepsi for 99 cents and a 16oz one was $1.29.
It just shows how little it costs to make the stuff.
Because they know people will pay 4 it so y would they drive the price down….
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