Some
economists have asserted that markets can remain competitive even when mergers
and consolidation reduces the number of major players to three. Advocates for DOJ and FCC approval of the
AT&T-TMobile merger invoked this “Rule.” I have expressed misgivings about
economists establishing rules and treating them as unimpeachable. Is three the optimal number that balances
efficiency and scale on one hand and the potential for noncompetitiveness and
consumer harm on the other hand?
Perhaps
three ventures can continue to compete robustly, particularly if one of the
three refrains from the clear incentives to match prices and go easy on
innovation. AT&T and Verizon may
compete on advertising, yet they seem to refrain from aggressive pricing. Have you ever seen a wireless service
sale? From my perspective if AT&T had
acquired TMobile consumers would suffer as the remaining Big Three would
control about 90% of the market and have even less incentives to deviate from
the profit maximizing consensus on rates, terms, and conditions for both handset
and service.
Now
that TMobile has to stay in the marketplace the company has embraced the role
of maverick and refused to go along with the consensus, a practice antitrust economists
term “conscious parallelism.” TMobile
actually competes with the Big Two by offering lower prices, particularly for
consumers who bring their own device (“BYOD”) thereby eliminating the need for
a carrier subsidy. The company offers
lower rates—not just month-to-month service for BYOD subscribers. In doing so TMobile has generated some
clarity on the actual cost of those “free” handsets.
Consumers
now have a choice between paying higher monthly rates for a two year term to
pay handsomely for a subsidized handset, or to buy/lease the handset so that
the monthly service rate drops, because it only covers wireless service. That’s what I call competition, something
that would not have occurred if the Rule of Three had applied.
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