interesting article about the history of predatory pricing
http://www.cato.org/pubs/pas/pa-169es.html
Monday, April 2, 2007
Predatory pricing and antitrust issues
In January 2007 , the court of first instance, EU's second highest court ruled that Franc telecom's broadband arm, wanadoo, kept competitors out of high-speed internet market illegally by charging artificially low prices, prices that are below their cost,[1]
This is an obvious predatory pricing case! basically; predatory pricing means selling the product at a price below the cost to drive the competitor(s) out of the market or at least discipline that competitor(s)[2][3], the definition looks very straightforward, but a deeper look in the issue shows the complications and ambiguities surrounded by predatory pricing.
first of all price-cost leadership is the major goal for any firm in any market, almost all competition is price-based, but where would the line be drown? what constitutes antitrust predatory pricing and what constitutes legal competition. especially in the telecom market?
The telecom markets are characterized by many particularities[2]:on most fixed-line telephony markets there is one-former monopolist with an established customer base and almost 100% share of the market in the beginning of the liberalization "in this case France telecom" naturally, new entrants will convince customers to switch,
In addition to that , the telecom market is characterized by high fixed costs "infrastructure" and low variable costs, so many new entrants might need to use the existing incumbent infrastructure, the prices for using the incumbent's infrastructure are usually regulated.
checking the above points reveals that there is a risk of predation in telecom markets[2]: the established operators can work form the customer base they have to achieve market power,that's for incumbent operators , from the other side there a large incentive for the new entrants to cut prices in order to encourage the customers to switch to their service.
there are many rules and used to identify predatory pricing,[2] talks about the best known one used called areeda-turner rule, where the price is considered predatory if it's below average variable costs, this rule however has it's limitations.
It is up to the regulator to define predatory pricing, it's difficult to establish certain rules to realize it! basically: a price is predatory if it's meant to drive competitors out of the market and there is no business behaviour can explain the price cut.[2]
the regulator can use two approaches to prevent predatory pricing, the ex-post approach is where the regulatory supervise the competition process, it's it up to the regulator and the courts to decide whether a certain behaviour is predatory, this process can be slow and not very effective and might fail to protect the competitors since any action may take place after the competitor is drown out of business.[2]
in contrast, the ex-ante approach requires the firms are required to get approval for all price changes before they happen, this approach is more drastic and is the current practice for most of the regulatory authorities.[2]
Predatory pricing is a serious issue in liberalized markets, the fine line between illegal pricing and normal pricing makes it more difficult to be decisive about it so many times normal pricing actions were considered predatory therefore stifling true competition , many other times predatory actions passed the supervision resulting in an unfair competition between firms.
References:
[1] Reuters.com "EU court rules france telecom broke antitrust rules" jan 2007 http://www.reuters.com/article/technologyNews/idUSBRU00535220070130
[2] "Predatory pricing on liberalized telecommunications markets" by Justus Haucap and Jorn Kruse, August 2002
[3] wikipedia.org
This is an obvious predatory pricing case! basically; predatory pricing means selling the product at a price below the cost to drive the competitor(s) out of the market or at least discipline that competitor(s)[2][3], the definition looks very straightforward, but a deeper look in the issue shows the complications and ambiguities surrounded by predatory pricing.
first of all price-cost leadership is the major goal for any firm in any market, almost all competition is price-based, but where would the line be drown? what constitutes antitrust predatory pricing and what constitutes legal competition. especially in the telecom market?
The telecom markets are characterized by many particularities[2]:on most fixed-line telephony markets there is one-former monopolist with an established customer base and almost 100% share of the market in the beginning of the liberalization "in this case France telecom" naturally, new entrants will convince customers to switch,
In addition to that , the telecom market is characterized by high fixed costs "infrastructure" and low variable costs, so many new entrants might need to use the existing incumbent infrastructure, the prices for using the incumbent's infrastructure are usually regulated.
checking the above points reveals that there is a risk of predation in telecom markets[2]: the established operators can work form the customer base they have to achieve market power,that's for incumbent operators , from the other side there a large incentive for the new entrants to cut prices in order to encourage the customers to switch to their service.
there are many rules and used to identify predatory pricing,[2] talks about the best known one used called areeda-turner rule, where the price is considered predatory if it's below average variable costs, this rule however has it's limitations.
It is up to the regulator to define predatory pricing, it's difficult to establish certain rules to realize it! basically: a price is predatory if it's meant to drive competitors out of the market and there is no business behaviour can explain the price cut.[2]
the regulator can use two approaches to prevent predatory pricing, the ex-post approach is where the regulatory supervise the competition process, it's it up to the regulator and the courts to decide whether a certain behaviour is predatory, this process can be slow and not very effective and might fail to protect the competitors since any action may take place after the competitor is drown out of business.[2]
in contrast, the ex-ante approach requires the firms are required to get approval for all price changes before they happen, this approach is more drastic and is the current practice for most of the regulatory authorities.[2]
Predatory pricing is a serious issue in liberalized markets, the fine line between illegal pricing and normal pricing makes it more difficult to be decisive about it so many times normal pricing actions were considered predatory therefore stifling true competition , many other times predatory actions passed the supervision resulting in an unfair competition between firms.
References:
[1] Reuters.com "EU court rules france telecom broke antitrust rules" jan 2007 http://www.reuters.com/article/technologyNews/idUSBRU00535220070130
[2] "Predatory pricing on liberalized telecommunications markets" by Justus Haucap and Jorn Kruse, August 2002
[3] wikipedia.org
Google Docs
Google docs and spreadsheets is a web-based productivity tool launched by google inc. as a "complementary" to desktop products, the Beta version was launched in march 2006 with the spreadsheets and in June , google docs was launched.
google docs & spreadsheets offer many interesting features and lack many others, assuming that Internet connection is available, files can be easily accessed whenever and wherever needed, modified right away, saved, even published, so it can be a good solution for users with high mobility.
it also provides the feature of sharing, the beta version can support up to 10 accounts modifying and using the same document. making it a good solution for work groups.
Security is another feature of google docs, all the files are stored in a "central" server , a relatively secure location and less prone to vandalism and such dangers
Along with advantages comes the disadvantages: the most obvious disadvantage is the lack of features, users that are "spoiled" with the features that MS office provides them, "me being one of them" find google docs features very basic and insufficient,
Dealing with privacy of content is another disadvantage , the same feature of security is the disadvantage of lack of privacy, storing the files away from the author in a central server will compromise the privacy of content and therefore users will be shunned from using this product for sensitive and Private content, in addition to that , users might feel uncomfortable to the idea of their files being stored away from them and prefer that they would reside "physically" closer to them
Add to that, the whole idea assumes that Internet access is always available, and that is not always true! many countries in the world don't have adequate and full access everywhere!
However , google docs/spreadsheets is only in it's Beta version, many features that are still not available and many features that will not be available, it's early to judge on the usability of this product, during my brief experience with this product , many bugs came and went, the stability fluctuated along the way! sometimes it even crashed my computer! typical of a beta version."right now the program works just fine! maybe because the google guys know I'm writing about them! who knows ?!!!"
the success of this product is based on many factors: increasing Internet access and make it available virtually everywhere, ensuring the total privacy and security of the content servers , and of course making the product more stable and offering more features. right now google docs might not be suitable for all types of users. in addition many users have already invested time and money on their existing word/spreadsheet applications so they'll provably resist the idea of switching to other products even if they are free! therefore another challenge that might face google is convincing the customers that their product is more stable and has more features.
However, as mentioned earlier, google docs is only a complimentary product, google officials claim that they're not trying to replace other established desktop products such as MS office but to give and alternative that might be useful in some cases. it shows google's increasing commitment towards a web based application products.
After all ; google docs is a good "light" solution when other products are not available, however the established , non web-based products are currently the better choice , even when most of them have performance and stability issues.
google docs & spreadsheets offer many interesting features and lack many others, assuming that Internet connection is available, files can be easily accessed whenever and wherever needed, modified right away, saved, even published, so it can be a good solution for users with high mobility.
it also provides the feature of sharing, the beta version can support up to 10 accounts modifying and using the same document. making it a good solution for work groups.
Security is another feature of google docs, all the files are stored in a "central" server , a relatively secure location and less prone to vandalism and such dangers
Along with advantages comes the disadvantages: the most obvious disadvantage is the lack of features, users that are "spoiled" with the features that MS office provides them, "me being one of them" find google docs features very basic and insufficient,
Dealing with privacy of content is another disadvantage , the same feature of security is the disadvantage of lack of privacy, storing the files away from the author in a central server will compromise the privacy of content and therefore users will be shunned from using this product for sensitive and Private content, in addition to that , users might feel uncomfortable to the idea of their files being stored away from them and prefer that they would reside "physically" closer to them
Add to that, the whole idea assumes that Internet access is always available, and that is not always true! many countries in the world don't have adequate and full access everywhere!
However , google docs/spreadsheets is only in it's Beta version, many features that are still not available and many features that will not be available, it's early to judge on the usability of this product, during my brief experience with this product , many bugs came and went, the stability fluctuated along the way! sometimes it even crashed my computer! typical of a beta version."right now the program works just fine! maybe because the google guys know I'm writing about them! who knows ?!!!"
the success of this product is based on many factors: increasing Internet access and make it available virtually everywhere, ensuring the total privacy and security of the content servers , and of course making the product more stable and offering more features. right now google docs might not be suitable for all types of users. in addition many users have already invested time and money on their existing word/spreadsheet applications so they'll provably resist the idea of switching to other products even if they are free! therefore another challenge that might face google is convincing the customers that their product is more stable and has more features.
However, as mentioned earlier, google docs is only a complimentary product, google officials claim that they're not trying to replace other established desktop products such as MS office but to give and alternative that might be useful in some cases. it shows google's increasing commitment towards a web based application products.
After all ; google docs is a good "light" solution when other products are not available, however the established , non web-based products are currently the better choice , even when most of them have performance and stability issues.
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