Re: Deregulation increases costs? [cr-95/9/21]


Sender: Lazlo Nibble <•••@••.•••>

> I fail to see how competition would increase cost of production.

It seems pretty straightforward to me.  Say I run a store of some kind.  My
supplier offers progressive discounts based on the volume of items I
purchase -- the more I buy from him, the lower my price is.  But the more
competition I have, the fewer customers I have -- which means I buy less
from my supplier, his discount to me drops, and my cost of business

::: Lazlo (•••@••.•••;


Sender: "Erickson, Dave" <•••@••.•••>

     An unknown person (possibly Gary Weston) wrote:
     > With regard to the idea that deregulation and competition in the
     telecom business will be a boon to consumers, I'd like to point out a
     tiny bit in the Santa Rosa Press-Democrat (owned by the NYT) today.
     Both Pacific Bell and GTE have filed for increases in local telephone
     rates.  The reason they have given to the state PUC is that
     competition in the local call business, which began only a few months
     ago, has increased their costs enough to warrant an increase.

     That isn't exactly what the deregulators promised us.

     Rick Emery wrote:
     >I fail to see how competition would increase cost of production.
     Costs of advertising, perhaps.  But not production.  Perhaps each's
     profit margin has been reduced due to customers being drawn away
     towards the competitor.  How- ver to declare an increase in costs?
     Ludicrous!  Basic, high school supply- and-demand economics would
     prove otherwise.  Let's not fall for the old adage: "If it's in print,
     it must be true."

     This one snippet certainly weighs lightly against the evidence that
     deregulation provides the best choice at the best price for the

     rick emery

     I can offer a possible explanation for deregulation increasing costs
     in this particular case. Not all geographic areas can be profitable
     for LECs like Pac Bell to provide phone service. However, they were
     (as a regulated monopoly) obligated to provide phone service to all
     who requested it. In order to offset the cost of providing service to
     remote or sparsely populated areas, the PUC established a surcharge
     added to the phone bill of all subscribers. This surcharge goes into a
     fund which is used to offset the cost to the phone companies of
     operating in unprofitable areas.

     As a result of deregulation, this fund is being done away with. On top
     of this, new players in the LEC marketplace obviously are motivated to
     compete only in the profitable geographic/economic sectors. This
     leaves the original LECs in the position of having to continue to
     provide service in areas that are unprofitable, while having their
     profit centers eroded by the johnny-come-lately's.

     So you can see that deregulation may have the possible effect of
     causing the original LECs to drop their least profitable customer
     base, with no "safety net" for the folks who live out in the sticks.
     Not only that, it creates an uneven playing field for the original
     LECs who have a huge investment in outside plant and equipment to
     provide service to unprofitable areas.

     There's another adage we perhaps should not fall for here, "Basic high
     school supply and demand economics is always true..." ;-)

     Dave Erickson

 Posted by --  Andrew Oram  --  •••@••.••• --  Cambridge, Mass., USA
                 Moderator:  CYBER-RIGHTS (CPSR)

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