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.

HD vs BlueRay Price Wars

As if the battle between HD and Blue-ray wasn't ugly enough, Walmart first dropped the price of their Toshiba HD A-2 DVD player to $198.00, then to $98.87 on a one-day sale. One strategy is exclusivity of movie titles offered with the hope that loyal customers will fit the bill, but I fear that this strategy will fail.

The battle being waged is reminiscent of the Beta vs VHS war over video cassette tapes mentioned in our previous class. One has higher quality specifications and the other has a lower price. Unfortunately for Sony, Blue-ray will become this generations Beta, especially with price wars like these. The perceived quality to the average consumer is almost identical, but the cost difference is almost double.

The fact of the matter is that unless there is a significant benefit from the much higher priced item, consumers will choose the cheaper product because they receive more consumer surplus.