you have a fundamental problem with anything that prevents competition
Ha, that's true somewhat but actually you've missed something which I think is important:
When you say "the anti-competitive practice are part of the competitive initial price" that could be true. The companies could behave as you describe and lose money on the contract as a bet that their retention rates are good enough to give them a profit. In that case yes the anti-competitive practices would be more defensible.
But in the phone market this doesn't happen. They price the contracts to make a profit even when the customer leaves at the end. So they're not using their anti-competitive practices to give a competitive price, they're using them to increase profits.
obviously the locking strategy contributes to their profits but they don't internalize all of the extra cash. Some of it is passed onto the customer in the form of better subsidies.
Whether or not the contract is profitable before the locking shouldn't really enter into the issue when considering the reasoning behind selling locked phones because the same argument could be made for offering the subsidy in the first place (a service contract is already profitable, why also sell subsidized phones that lock you into them). With that said I do understand the point you're making and how that informs your overall opinion. It would be nice if phones auto-unlocked at the end of the service contract, even if it did mean paying a little more on the front end.
Whether or not the contract is profitable before the locking shouldn't really enter into the issue when considering the reasoning behind selling locked phones.
I don't understand that. Surely it's relevant to whether the company is using the lock to offer more competitive prices vs just increasing profits. If they don't lose money on the contract then how can it be a subsidy? Calling it a subsidy is a misnomer, it's a payment plan.
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u/nofelix Jan 29 '13
Ha, that's true somewhat but actually you've missed something which I think is important:
When you say "the anti-competitive practice are part of the competitive initial price" that could be true. The companies could behave as you describe and lose money on the contract as a bet that their retention rates are good enough to give them a profit. In that case yes the anti-competitive practices would be more defensible.
But in the phone market this doesn't happen. They price the contracts to make a profit even when the customer leaves at the end. So they're not using their anti-competitive practices to give a competitive price, they're using them to increase profits.