Tuesday, January 14, 2014

One Cellphone Carrier Changes Policy

The New York Times reports that the smallest of the four cell phone carriers is changing their product policies (and pricing policies).  Why the policies occur is one of the outcomes of an oligopolistic market.  Where there is limited competition, firms have greater ability to create and maintain product policies (such as the two year cell phone carrier contract) that do not take place in more competitive industries.  T-Mobile is now eliminating the two-year contract, along with the enforced cell phone charge.

Additionally, notice in the article that T-Mobile is menu pricing by data usage:  500 megabytes ($50 a month), 2 gigabytes ($60) or unlimited ($70) per month.  Given that menu pricing can be profit enhancing, this is one option to try to recover any lost revenue from the change in locking in customers for two years to allowing some to leave early.

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