Category Archives: Competition

Competition for Data? Netflix and the Fight Over Data Caps

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In a recent article from Ars Technica, Jon Brodkin outlines the arena where Netflix, Comcast, and the FCC are battling over the implementation of data caps from ISPs.

The deeper issue here is how we approach net neutrality and allow ISPs to control content.  Facing data caps, consumers will have to make marginal choices on what content to consume, forcing some consumers off the internet and onto cable TV.  This seems like a clear reduction in competition.

Comcast, a; virtual monopoly in some markets, argues that the implementation of data caps are to “align consumers’ use of the network with what they pay.”  This tactic known as price discrimination, allows firms to charge a consumers willingness to pay instead of one flat market price.

Comcast isn’t alone in their actions though.  Take for instance mobile ISPs and their arbitrary mobile data caps.  Overage charges again are a way for ISPs to determine a consumer’s willingness to pay for access to streaming content.  Moreover, some mobile carriers have exclusive deals in place with content providers where streaming content from these providers does not count against consumers’ data caps. This is clearly a net neutrality issue and one that many consumers have yet to understand.

Another Case of a Pharma Monopoly

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In the past, we’ve seen cases where pharmaceutical companies have virtual monopolies on drugs and courses of treatment e.g. Duripram.  Here is another case, where this time its is the maker of Epi-Pen which has a monopoly on a highly inelastic good.

The question has come up time and again, is it ethical to take advantage of the market in way which maximizes profits?  From our coursework, we would expect this firm to raise prices along with total revenue, since the good is almost perfectly inelastic.  Where do you stand on this?

Goldman Sachs says it may be forced to fundamentally question how capitalism is working

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In a very interesting article written by Bloomberg Goldman Sachs reflects on their profit margin analysis.

Looking at why profit margins are expending, Goldman analysts refer to four key points:

  • Strong commodity prices
  • Emerging market cost arbitrage
  • Demand growth from emerging markets
  • New technology driving corporate efficiency

This is where we want to use some of our economic theory.  We would expect that profit margins at some point would roll over and mean revert.  Why? Because of competition.  We would expect firms to enter markets and bolster competition; thus eroding profits.  If we don’t see that happening and margins remain high, does that mean capitalism is broken?