Chapter 17 Reflection

1. What do you think about anti-trust laws with respect to the cell-phone industry?  Do you think the cell phone industry could be an oligopoly? Why or why not?

2. Take a few moments to explain how a decision box works.  What about Oligopolies is most unclear to you?

                I think that anti-trust laws are important to regulate the cell phone industry just as they are for all other oligopolistic enterprises.  If anti-trust laws were not in place this would allow AT&T to have a monopolistic hold on the cell phone industry.  According to a press release on the Department of Justice’s website (31 Aug. 2011), their position holds as “the proposed $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers who rely on mobile wireless services in their everyday lives.”

                The one example of a controversial business practice that relates to cell phones is tying.  This practice is one of three from our text that anti-trust laws can regulate.  When Apple introduced the cell phone they had a type of software installed on the phone that only made it possible for the phones to use AT&T’s network.  A federal and state lawsuit ensued claiming violation of anti-trust laws.  Since then iphone’s have become available on networks such as Verizon, Sprint, T-Mobile, StraightTalk, Net10 and others I’m sure I’m not aware of. 

                Since anti-trust laws are in pursuit of curbing monopoly power, I think it is important for cell phone companies to be regulated since some to the disadvantages of monopolistic power are higher prices, restriction of other new innovative products to the market, reduction in economic welfare and fewer consumer choices.  Personally, I just got my first iphone in Dec. 2013 and live in a place where AT&T coverage is non-existent.  If it weren’t available on the Verizon network, I’d never had had the opportunity to use an iphone.

                In regards to the cell phone industry as an oligopoly, I think it already does exist as one.  AT&T, Sprint, Verizon and T-Mobile currently control almost 90% of the country’s cell service market.  To answer this question in respect to a monopoly, the answer would be no.  Just like the antitrust suits Microsoft has faced as far as integrating their Internet browser into their operating system was dismissed because it would have created too much market power, the same would be true if the government allowed AT&T to purchase T-Mobile or any other carrier.

                A decision box is used in game theory.  Our text defines game theory as “the study of how people behave in strategic situations.”  When a situation calls for strategic thinking, people use the information they have to design the best possible plan to reach their objective.  Game theory is sort of a version of a cost-benefit analysis one would use to make a decision.  The only real difference is that game theory, as specific to oligopolistic competition, encompasses decisions that are interdependent among the other firms.  A decision box is the illustrative expression of such a process. 

                What is most unclear to me about oligopolies is collusion.  Under what circumstances is collusion illegal?  In a certain sense is it just frowned upon?  Why is price-fixing illegal to even mention in conversation?  Wouldn’t there have to be evidential support to get someone in trouble?

Chapter 16 Reflection

     The way I think about it, advertising limits the amount of competition a monopoly faces.  Through advertising efforts, a company has the ability to convince potential byers that their product is better and / or different from that of its competitor (product differentiation). If they succeed in doing so, they will be able to charge a higher price and also limit what their competitors sell.  I think this would be less and less so in the case of oligopolies and fair markets.  I consider pricing to be a form of advertising, and if the goal of marketing is to communicate to potential buyers the value of a firm’s product, then selling it for a certain price point is indicative of that goal.  For example, I know that I have been in retail pursuit of certain things that I may not be very familiar with, e.g. electronic goods and end up buying an item that may not be the most expensive, but also not the least expensive.  I usually choose the middle price point.  If I only have two choices for a certain good, I will probably choose the more expensive as long as the marginal cost is not too great.

          The effectiveness of advertising also has to be taken into consideration.  For example, any money spent of advertising should, hopefully increase gains in revenue.  If a certain marketing technique is clever and turns out to be worth the money because it increases sales, then it makes the cost worthwhile.  On the other hand, if a marketing technique fails to entice or attract customers, then that leaves room for the competition to fill the void.  Good advertising limits competition; poor advertising invites competition.  Advertising is not cheap, not to mention instrumental in the promotion of a good, thereby placing it as a priority in the marketing of a product. 

          The most interesting thing I learned in this chapter was about price discrimination.  Just as by any other kind of discrimination, it sounds like a bad thing.  However, in regards to maximizing profits, it seems like the logical thing to do especially in the given example in our text.  Selling books to two different groups with two different interest levels in the material may not sound fair, but if marketing shows that the die-hard fan base is willing to spend more for a copy – it makes sense to charge what they are willing to pay.  The most interesting outcome of price discrimination is that it actually increases economic welfare.  The Australian buyers, who would have initially been excluded from buying the book due to too high of a price are included when price discrimination is in effect, thus letting them enjoy the book.  This seems to be a win-win situation for consumers and producers.