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Thursday, June 30, 2005

Signs of a Not So Cozy Duopoly
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Those who would retain the regulatory status quo of pervasive price regulation have switched epithets in the last year from "monopoly" to "duopoly." A duopoly, we are told, is just as bad because the two firms in the market will cozily divide up markets and share supracompetitive profits.

It appears someone forget the duopolists that this is how the textbooks demand they behave. SBC has again escalated the price wars with cable, offering three free months of TV and high-speed Internet service for defectors from cable.

The "blackboard economics" so dear to regulatory revanchists does not predict this vigorous competitive behavior in a two firm market. (This is not to say it is a strictly two firm market. Indeed, the contours of this dynamic communications market are hard to make out right now as things converge.) But so far, the competition seems vigorous. You can hazard some guesses as to why: the competition is Schumpeterian and "for " the market as opposed to "in" the market; customers are long-term and sticky, thus even two firms will behave competitively. It's not yet clear what it going on.

I would agree with those who argue that you want three firms competing to feel really safe about the competitive future. Hence the importance of the DTV transition. That said, two triple-play companies seem to be working rather well for consumers right now, especially in SBC's footprint.

posted by Ray Gifford @ 10:54 AM | Broadband , Digital TV , Spectrum

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