Perfect Competition Assumptions in Real Life

17 February 2017
17 Feb 2017
2 min read

In another win for economic theory,1 I read a recent Verge article regarding how competitive pricing by T-Mobile forced Verizon to bring back an unlimited data plan. Later, AT&T and Sprint followed suit. The article reads:

So what prompted this about-face that offers not just its first real unlimited plan in over half a decade, but one with prices and perks so generous that T-Mobile, Sprint, and (to a lesser extent) AT&T spent the week scrambling to match it?

The simple answer is competition. T-Mobile, for all its underdog nipping at Verizon’s heels, is slowly catching up to Verizon — while it still doesn’t have nearly the customer base, T-Mobile is at the very least putting up a fight with Verizon when it comes to coverage, speed, and reliability.

“Verizon’s perceived network advantage is no longer strong enough to keep its best customers on unattractive rate plans and it was forced to respond,” reports BTIG analyst Walter Piecyk, which, along with T-Mobile announcing a record porting ratio against Verizon in Q1 2017, may explain Verizon’s sudden change in attitude.

This falls in line exactly with competitive supply and demand theory. 2 As mobile phone service is becoming more and more homogeneous 3, service lock-in is falling. Combine that with the ability to look at and compare differing plans via the internet, 4 these factors force prices to fall, benefiting consumers.

However, there are also recent reports of Sprint and T-Mobile restarting merger talks, which could reverse these trends that we’re seeing currently. I believe that mobile phones have changed the environment for the better; making sure everyone can access them will be key in the upcoming years.

  1. And most importantly, consumers! ↩︎

  2. One could make the comment that we’re really seeing Bertrand Competition and they would not be wrong; however, I’m focusing on the competitive demand aspects to make a point about homogeneous services. Regardless, we end up with the same result. ↩︎

  3. Aka, the same. ↩︎

  4. Achieving the Perfect Information assumption, or getting close to it ↩︎

Want to know more?

I spend a ton of time thinking on how to work smarter, not harder. If you'd like to be the first to know what I'm thinking about, sign up to the list below.

Forging Hephaestus Book Review

Pricing as an Indie Author with Drew Hayes