Mobile Operators: Creating Artificial Demand For Capacity? 268
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.
Re:Doesn't the iPhone and AT&T prove this wron (Score:4, Informative)
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 [wikipedia.org] ruling.
Re:Doesn't the iPhone and AT&T prove this wron (Score:5, Informative)
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 [reuters.com] that AT&T did not lose any significant number of users to other iPhone carriers when exclusivity ended. They actually GAINED customers [appleinsider.com], and they GAINED more iPhone 4S customers [digitaltrends.com] 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 [latimes.com].
According to CNN-Money: [cnn.com] 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.
More fundamental flaws (Score:5, Informative)
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.
Re:An old, old story (Score:4, Informative)
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.
Egyptian corn? Corn is a New World crop, It was unknown in the Mediterranean region until the 16th century.