Steve Klingaman

Steve Klingaman
Location
Minneapolis, Minnesota,
Birthday
January 01
Title
Consultant/Writer
Bio
Steve Klingaman is a nonprofit development consultant and nonfiction writer specializing in personal finance and public policy. His music reviews can be found at minor7th.com.

Editor’s Pick
MARCH 24, 2011 8:26AM

AT&T & Verizon: Another Coercive Duopoly?

Rate: 13 Flag

iphone_duopoly

iphonetouch.blorge.com 

Okay, quick:  VISA-Mastercard, MillersCoors-Anheuser-Busch, FedEx-UPS, Dish-DirectTV, Pepsi-Coke, Moody’s-S&P; what do they all spell?  Duopoly-the peculiar market bottleneck that chokes competition, restricts consumer choice, raises prices, and still somehow, in the eyes of the government, is not monopoly capitalism.  AT&T’s proposed acquisition of T-Mobile will fit right in.  If the merger is approved—and really, who would suggest it won’t be?—the combined new AT&T will leapfrog over Verizon to become the dominant wireless provider with 129 million subscribers and a 42 percent marketshare.  Verizon, the new number two, will control 31 percent of the market with 101 million subscribers. Together they will service three out of every for cellphone users.

            “And if regulators approve this deal, they will further cement duopoly control over the wireless market by AT&T and Verizon,” said S. Derek Turner, director of research at Free Press Research, as quoted by the New York Times.

            Sprint will be branded an also-ran, with just 50 million subscribers.  The number three cellular provider lost $3.5 billion in 2010.  It's a no-brainer takeover target for Verizon in the not-too-distant future.

T-Mobile, once the low-cost leader, made a fitting takeover target, especially if you happen to be a corporate oligarch, tired of dealing with pesky competitors who dare to compete on price.  And that’s the thing about a duopoly; it represents a stasis, a balance, in which price competition is thwarted.

            There’s even a term for the condition: a Nash equilibrium.  Wikipedia defines a Nash equilibrium as applied to game theory as one where “no player has anything to gain by changing only his own strategy unilaterally.”  It works best in a two-party platform, with its limited universe of moves-in-relation.  It means, roughly, in one sense, I lower prices—you lower prices—I lower prices; we both lose.  If you lower prices and I hold, a stasis is achieved, you stop lowering prices, I compete on any other variable I chose, and rising costs compel you over time to raise your prices as we achieve parity and equilibrium.

            Who loses?  Just one guy—the consumer.

            A Nash equilibrium is the perfect expression of a coercive duopoly [my term], in which choices are restrained or dominated by force, in this case the pure force of market domination.  The crazy thing about coercive duopolies is that they thrive under unregulated, laissez-faire capitalism.  So why would capitalists, or adherents of a party that champions same, hold out for such an anti-competitive mechanism?  Call it a triumph of rhetoric over reality, especially for those who would adhere to said party thinking that a lack of market regulation somehow benefits the little capitalist, the Main Street capitalist, the entrepreneur dreaming of a start-up, each with a good idea, anteing in on a level playing field.

            A coercive duopoly, classic divide-and-conquer strategy that it is, is essentially a strategy of the oligarchs against the little guy.  You’ve all heard of regulatory capture as a strategy of capitalism, a strategy to defang regulatory oversight.  A coercive duopoly represents market capture. Regulatory capture is just a way station on the way to market capture, which is the true end-state of a marketplace in which the essential strategy is to acquire the competition in lieu of competing with regard to the provision of actual goods and services.

            How ironic, then, that Main Street Republicans stick their fingers in their ears and repeat the mantra “money money money money” whenever anyone brings up market regulation, when it is regulation against monopoly that allows a multitude of free-standing players to compete freely on a more or less level playing field.  Doubly ironic, I suppose, that the so-called sclerotic welfare democracies of “Old Europe” actually protect the entrepreneur to a far greater degree than you will ever find here.  Well, it’s true.  Remember, they reined in Microsoft.

            Just as the Senate, however controlled, always backs banking, the federal government, however controlled, always allows market contraction towards duopoly.  I wonder what we would look like as an economy if we just said no—no to just Fords and Chevys—for once.  The effects of a duopoly include almost absolute pricing control; that’s easy enough to understand.  But more than that, a duopoly drives other competitors toward extinction at the same time it represents insurmountable barriers to entry.  Need a case study?  Just check out the aeronautics industry from 1950 to today, when now we have just Airbus and Boeing, and that’s worldwide.

            The reason the Senate has been captured to the degree it has is due primarily to concentrated money, the really big money, funding anti-competitive positions.  Regulated capitalism of the type that the progressive center espouses actually promotes competition, especially the type so revered by Main Street capitalists.  So it is worse than ironic that after all is said and done, after we have to listen to all this…blather…over free markets, that the real money and real corporate power in America has no real use for competition at all.  I guess it all comes down to, if ya can’t beat ‘em, eat ‘em.  So long, T-Mobile, hello Fords and Chevys.

 

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I read articles like this (great post, by the way) and I just shake my head. What you're saying is absurdly true; that competition among the big corporations is a myth and prices continue to rise. As the feds give them everything they need to make huge profits, not just with a lack of regulation but also huge tax credits and/or use of public land or facilities at little or no cost, the middle class gets squeezed for higher prices and pays higher taxes. Where is this going to end up? How can it possibly continue indefinitely?
"a triumph of rhetoric over reality" Indeed, You got it -- too bad the majority of Americans don't get it. The are so slavish to the theory of capitalism, they can't see it doesn't exist in their world. Bread and circus has that effect.

One is forced to cling to the audacious hope that when the bread runs out and people can no longer afford the circus, they will begin to see the wisdom of operating like "the so-called sclerotic welfare democracies of Old Europe”.

Oh, and by the way, you might have mentioned that the Nash equilibrium was the work of John Nash, the subject of the movie A Beautiful Mind.
PS Without the monopoly of the iPhone AT&T enjoyed for several years, the company would not likely have had the money to acquire T-Mobile.
this is absolutely playing itself out in the 2-party system as well when the parties have no incentive to allow other parties in, robbing power from the two of them... and as you suggest - the people lose again. Corporations are killing the people's movement in WI too and this just means that we have to fight harder and longer and refuse to go away...sorry, everything I read lately all ties into us...I'm a bit self-centered these days...great post, I learned a lot.
What an incredibly important concept. The illusion of competition that is really anything but. (I'll need to read this over several times.) Great work, Steve.
It makes me sick. A few years ago I escaped AT&T - sick of their sh*tty customer service and high costs and went to T-mobile, a provider I was perfectly happy with. I just signed a 2-year contract with t-mobile and now you're telling me I'm back to square one with sh*tty AT&T ?

Makes me feel like bailing on my tmobile contract. Great post. In a few years we will be left with 2 banks, 2 cell phone companies, and 2 media conglomerates in our wonderful Oligarchy/Plutocracy.
Democracy is dead and buried, I'm afraid. Great article.
Absolutely brilliant article, Steve. I emailed it to a friend and bookmarked it so I could read it again. If I had any money, I'd send you a "tip" ;-D

Thanks for posting it.
This is a point I can never get across to the "free marketeers." (By "free" market, I can only assume they mean laissez-faire .) They almost invariably insist they are for competition. Yet, the absence of regulation inevitibly leads to concentration which stifles competition to a far greater extent than any regulation ever posed in this country.

The "free" market is a myth. You can't have it with regulation and you can't have it - at least not an economically competitive one - without it.
Excellent post, and you are correct. The European Union will most likely give this AT&T buy-out of T-Mobile USA more due diligence than what can be expected here in the US.

BTW - a great insight into the formulation and practice of the Nash Equilibrium is included in part 1 ("Fuck You Buddy") of "The Trap", an excellent 3-part BBC documentary by Adam Curtis never released in the US but available for free online at archive.org: http://www.archive.org/details/AdamCurtis_TheTrap

Wikipedia on "The Trap" - http://en.wikipedia.org/wiki/The_Trap_%28television_documentary_series%29
:/ You just know AT&T is going to increase their ETF, fuckers!

-R-
Thanks for your comments. Responding to just a few points:

Tom, thanks for pointing out that John Nash (A Beautiful Mind) came up with the concept. It is fascinating, I did less than touch the surface of its ramifications.

Yes, I would agree that the iPhone monopoly lined AT&T's pockets sufficiently to do this deal.

Y Heron, yes, many speak of the duopoly model in relation to our two parties. It takes on even greater significance if you combine the idea with the Nash equilibrium--and coercion.

Broken, yes, you are stuck with a contract that will be grandfathered in. I cannot think of any way that rates will remain where they are, except for Sprint users. Sprint will be forced to compete on price alone until it, too, is obliterated.

Thanks, again, all.
The thing is, no one listens to us. They listen to people with big pockets, and people who help fill those pockets. Even though the real money comes from us, we're considered unimportant to the grand equation.
I knew something was wierd but not this wierd. GSU
Enjoyed the post. Just remember that in business circles, the holy grail is the "sustainable strategic competitive advantage." What no one talks about is that the entire idea of "/strategic/ advantage" comes down to a company being able to lock up distribution channels, control pricing, etc. In other words: lock in their own success by gaming the system, rather than by providing a better product at a lower cost.

This is what's taught in all business schools. This is what's trumpeted by all of the big consulting firms. And it all comes down to this: how can I make my company win without having to be inconvenienced by actually providing a good product at a good price?

The only people who want an actual competitive market are consumers and companies who, for the moment, don't have a structural reason to force people to buy their product, but must actually compete in the marketplace. (And the latter group will stop the moment they can find a way to lock in their own advantage.)
Stever, Excellent points! I would be interested to read more of your thoughts on the subject.