4/04/2008

Wireless Price War

Verizon Wireless recently commenced its $99 unlimited calling plan and competitors of course quickly followed suit. Is this really smart? Cell phone companies have typically sold minutes in “buckets” of time, packaging deals to get the most surplus out of customers. By creating plans with unlimited minutes, wireless providers “could lose 25% to 40% of the revenue from some of their most lucrative customers.” I'm not sure how lowering the price like this could be good for the industry, except to get people away from landlines.


4 comments:

Avery said...

The demand for cell phones must be slowing and the cell phone industry is fearing competitors like Comcast more than each other. Since the other cell companies followed quickly with similar price plans, Verizon cannot be hoping to steal customers away from other cell phone companies.

Reagan said...

When there is a market that firms can exploit for profits you will see increased competition for those profits, not just with direct competitors but also with substitute products. With VOIP, portable VOIP, and other internet telecommunication technologies becoming more prevalent consumers marginal benefits will start to decline and all telecommunication companies will be forced to reduce their prices. Verizon, Sprint, and AT&T all now offering the same $99.99 unlimited talk time plans. We can also read between the lines and see that cell phone providers have enough supplier surplus that prices will continue to decline in an effort to hold on to their customers.

carter said...

Cell phone companies are not stupid. There are more and more companies coming out with cheaper rates. Every year package prices become cheaper because technology is increasing and technology is becoming cheaper.

Dr. Tufte said...

I'm not sure of the particulars here, but this goes back to pricing services in a bundle that converts as much consumer surplus to producer surplus as possible.

But ... these all-inclusive pricing schemes never seem to be a good sign for any industry.