osewalrus (osewalrus) wrote,

My latest blog post -- Competition v Policy

In a rather lengthy post, I explain why the price of SMS text messaging bears no relationship whatsoever to cost and why we should not expect it to absent regulatory intervention. It is not an absence of competition or an exercise of market power. It is a question of market _structure_, which means that you will pretty much get the same result no matter how many competitors you add.

This does not answer the bigger question of "do we care?" Indeed, we may not, as a policy matter, give a tinker's damn if cell phone companies can charge $15 a month for"all you can eat" text messaging when this has no relationship to the cost (fixed and marginal) of the service. But for God's sake, stop analyzing it as a competition problem! the market works just fine, it's a question of public policy. Until we stop framing policy questions as "enough competition -- yes/no," we are never going to get anywhere in solving real public policy problems.


I will add that similar analysis applies to a number of telecom questions we keep trying to resolve by invoking competition without paying attention to market structure. "When banks compete, you win" turned out to be a really bad policy for the economy as a whole in the long run -- even if in the short term it produced great opportunities for subprime borrowers. The same is true in communications markets as well.

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