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osewalrus In a competitive market, companies are stuck taking what profit margin they can get. If competition forces a company to reduce price, then the provider either takes a hit on profit margin or finds a way to make the same good cheaper. This is why competition is good for consumers, innovation, blah blah blah All Praise The Gods of the Marketplace.
By contrast, a monopolist gets to decide their return based on something called the monopoly efficient price. How much will people pay for the good when they can't get it cheaper? Sure, the more expensive, the more people stop buying, but you make more money per person. So the monopoly efficient price is higher than the competitive market price. This is pretty much your first day in Econ 101.
It is the mark of a monopoly that, in response to loses in one line of business, it can simply raise price in its monopoly line to compensate. This is particularly true for a bundled product. After all, we have already established how many people will pay a total of $100/month (on average) for their combination of broadband/TV. True, if they have the opportunity to ditch the TV for something cheaper, they do. This is why cable operators hate selling pure broadband, and resisted doing so for many years.
So how does cable maintain the same level of profit? You could refuse to sell unbundled broadband. But there comes a point when even slower but cheaper DSL is good enough, or even just your 4G mobile with unlimited plan will do, so cable operators need to sell either a pure broadband or lose customers to these cheaper alternatives. If we are at the monopoly efficient price before, a further increase in the price of video (which the cable operator cannot entirely control, because the cost for video programming keeps gong up) forces people to drop your entire product. No matter how much they may want it, they simply cannot afford it.
Fortunately, cable operators have a solution. Raise the price of broadband to match what you were making as profit on the combined video. Since you are ditching the additional cost of the video programming, and you have no increased cost on the broadband side, you only have to raise the cost of broadband enough to cover the lost profit -- which may double the price of broadband but is still cheaper than the combined broadband/video. But what about the remaining video customers? Won't this hurt them? Easy, artificially discount the cost of the bundle. You still charge the monopoly efficient price, you simply tell the subscriber that the cost is apportioned differently. If anything, they may be happy to get such "cheap" TV as a "special deal" along with their super-expensive broadband.
But what about those cheap alternatives? Happily, most people do not consider these a real substitute. Because cable is better and faster than either DSL or pure mobile (for most people), they pay the premium for cable broadband. As long as you keep the cable price at the monopoly efficient price, your are golden.
This is what Wall St. is now urging cable operators to do in the face of cord cutting, and it looks like that is going to happen.
http://www.fiercecable.com/cable/cable-operators-need-to-raise-standalone-broadband-to-80-to-offset-cord-cutting-analyst-says
http://www.ibtimes.com/could-your-internet-price-double-soon-wall-street-bets-yes-2599053?amp=1
https://www.techdirt.com/articles/20171018/09404438429/cable-industrys-ingenious-solution-to-tv-cord-cutting-raise-broadband-rates.shtml
But what if some other cable operator wanted to lower rates anyway? That would be embarrassing. Fortunately, because Comcast is vertically integrated, it can prevent that from happening by raising the cost of its broadcast video programming.
https://arstechnica.com/tech-policy/2017/10/comcast-found-a-way-to-raise-other-cable-companies-prices-rivals-say/
But what if you are one of the few Americans lucky enough to have an overbuilder, or a municipal broadband provider. No problem! As an incumbent monopolist in lots of areas, you can raise prices in the surrounding areas while you engage in predatory pricing against your rivals to drive them out of business.
https://potsandpansbyccg.com/2017/10/16/the-competition-dilemma/?mc_cid=ead18ce189&mc_eid=bf11efc24c
But won't that violate antitrust laws and get me in trouble? Good news, modern antitrust law virtually ignores the impacts of vertical integration and bundling! In fact, since Bork's "The Antitrust Paradox," predatory pricing has been declared a liberal myth to impose market regulations.
https://www.yalelawjournal.org/note/amazons-antitrust-paradox
By contrast, a monopolist gets to decide their return based on something called the monopoly efficient price. How much will people pay for the good when they can't get it cheaper? Sure, the more expensive, the more people stop buying, but you make more money per person. So the monopoly efficient price is higher than the competitive market price. This is pretty much your first day in Econ 101.
It is the mark of a monopoly that, in response to loses in one line of business, it can simply raise price in its monopoly line to compensate. This is particularly true for a bundled product. After all, we have already established how many people will pay a total of $100/month (on average) for their combination of broadband/TV. True, if they have the opportunity to ditch the TV for something cheaper, they do. This is why cable operators hate selling pure broadband, and resisted doing so for many years.
So how does cable maintain the same level of profit? You could refuse to sell unbundled broadband. But there comes a point when even slower but cheaper DSL is good enough, or even just your 4G mobile with unlimited plan will do, so cable operators need to sell either a pure broadband or lose customers to these cheaper alternatives. If we are at the monopoly efficient price before, a further increase in the price of video (which the cable operator cannot entirely control, because the cost for video programming keeps gong up) forces people to drop your entire product. No matter how much they may want it, they simply cannot afford it.
Fortunately, cable operators have a solution. Raise the price of broadband to match what you were making as profit on the combined video. Since you are ditching the additional cost of the video programming, and you have no increased cost on the broadband side, you only have to raise the cost of broadband enough to cover the lost profit -- which may double the price of broadband but is still cheaper than the combined broadband/video. But what about the remaining video customers? Won't this hurt them? Easy, artificially discount the cost of the bundle. You still charge the monopoly efficient price, you simply tell the subscriber that the cost is apportioned differently. If anything, they may be happy to get such "cheap" TV as a "special deal" along with their super-expensive broadband.
But what about those cheap alternatives? Happily, most people do not consider these a real substitute. Because cable is better and faster than either DSL or pure mobile (for most people), they pay the premium for cable broadband. As long as you keep the cable price at the monopoly efficient price, your are golden.
This is what Wall St. is now urging cable operators to do in the face of cord cutting, and it looks like that is going to happen.
http://www.fiercecable.com/cable/cable-operators-need-to-raise-standalone-broadband-to-80-to-offset-cord-cutting-analyst-says
http://www.ibtimes.com/could-your-internet-price-double-soon-wall-street-bets-yes-2599053?amp=1
https://www.techdirt.com/articles/20171018/09404438429/cable-industrys-ingenious-solution-to-tv-cord-cutting-raise-broadband-rates.shtml
But what if some other cable operator wanted to lower rates anyway? That would be embarrassing. Fortunately, because Comcast is vertically integrated, it can prevent that from happening by raising the cost of its broadcast video programming.
https://arstechnica.com/tech-policy/2017/10/comcast-found-a-way-to-raise-other-cable-companies-prices-rivals-say/
But what if you are one of the few Americans lucky enough to have an overbuilder, or a municipal broadband provider. No problem! As an incumbent monopolist in lots of areas, you can raise prices in the surrounding areas while you engage in predatory pricing against your rivals to drive them out of business.
https://potsandpansbyccg.com/2017/10/16/the-competition-dilemma/?mc_cid=ead18ce189&mc_eid=bf11efc24c
But won't that violate antitrust laws and get me in trouble? Good news, modern antitrust law virtually ignores the impacts of vertical integration and bundling! In fact, since Bork's "The Antitrust Paradox," predatory pricing has been declared a liberal myth to impose market regulations.
https://www.yalelawjournal.org/note/amazons-antitrust-paradox
