Alacarte Cable and Geeks

Andrew Odlyzko odlyzko at umn.edu
Sat Dec 18 14:07:01 UTC 2010


It's an interesting question.  Even leaving aside the question of
billing costs, there are conflicting incentives.  Service providers
want to extract maximal revenues, but that requires not just
fine-scaled pricing, but very overt and fine-scaled price 
discrimination (which may often be illegal).  On the other hand,
even aside from general customer preferences for flat-rate
simplicity (and the empirically demonstrated willingness to
pay more for flat rates), even in the conventional economic
model in which Homo economicus customers are trying to maximize
well-defined utilities, flat rates can be seen as a form of
bundling, which allow the sellers to benefit from the uneven
valuations of buyers.  A simple argument demonstrating this
is on p. 19 of the preprint of my paper "Internet pricing and 
the history of communications,"

    http://www.dtc.umn.edu/~odlyzko/doc/history.communications1b.pdf

(which appeared in Computer Networks 36 (2001), pp. 493-517).
This is something that most people in the telecom industry
appear to be blissfully unaware of.  Just as they are unaware
of the fact that for almost a century, the US, which was an
outlier on the world telecom scence in having (predominantly,
although not universally) flat rate residential service, had
higher telecom spending (as fraction of GDP, say) than
countries that switched to metered rates.

One cannot say a priori whether flat or metered rates will be
better for either sellers or buyers, it all depends.  But it
is amusing to see the cable companies, in particular, fighting
tooth and nail against moves to make them unbundle video channels
while at the same time arguing they have to charge by volume
(which is a form of bundling).

Andrew



On Fri, 17 Dec 2010, Jeroen van Aart wrote:

> Jay Ashworth wrote:
>> individual subscriber pushed the complexity up, in much the same way
>> that flat rate telecom services are popular equally because customers
>> prefer them, and because the *cost of keeping track* becomes >delta.
>
> Can someone then please explain me why the hell in many other countries 
> flatrate telecom service (I refer to flatrate local calls) does not exist or 
> has been phased out. In the Netherlands they phased it out in the mid to late 
> 80s. I am sure the then government owned telecom rats saw increased revenue 
> coming real soon now due to increased modem usage.
>
> (still pissed at ridiculously and unnecessarily high phonebills...)
>
> It seems to me that at least in that case the cost of keeping track was far 
> less than the increased revenue that metered (if that's the right word) local 
> calls would provide.
>
> Regards,
> Jeroen
>
> -- 
> http://goldmark.org/jeff/stupid-disclaimers/
> http://linuxmafia.com/~rick/faq/plural-of-virus.html
>




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