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Author Topic: price discrimination
LetterRip
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What do you think the odds are of a successful price discrimination lawsuit against AT&T?

They sell 3 identical products (wireless 3G data access) but based on which product you have you are only allowed to purchase from a specific segment at drastically different prices.

If you have a 'non smart phone' - then you can purchase data from their 'pay go' menu - only small amounts with a huge price. If you have a smartphone you can only purchase smartphone plans. If you have a tablet you can only purchase a DataConnect plan.

From a technical and user perspective there is no difference between these plans - only a massive price difference and how much data is minimum.

The tablet DataConnect plan is by far the best deal in terms of data per dollar spent. The paygo can get you a bit of data for minimal outlay.

It seems ridiculous that they can do this.

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Pyrtolin
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I would actually suggest that, in practice, the non-smart phone data connection is actually a lesser product, because while the back-end is similar, the device itself significantly limits its utility and the practical ability to use the data.

In general, though, I'd say that the real problem lies in network locking the phones, which leaves GSM the one standard left with a direct competition (T-Mobile vs AT&T) unable to fully benefit from said competition., which lets that kind of adverse pricing thrive.

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JWatts
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Generally price discrimination isn't illegal and happens all the time. Restaurants give price discounts to different groups of people, i.e. fire fighters, military, works at X (a big factory nearby), etc. That's price discrimination and it's common.

However, what you are describing isn't really price discrimination. Price discrimination requires that the product be identical, not similar. You are describing similar products.

So, I'd set the odd of a successful price discrimination lawsuit very low.

[ October 03, 2011, 10:07 AM: Message edited by: JWatts ]

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LetterRip
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JWatts,

the feature phone can use either of the plans (paygo set amount, or one of the expensive plans), the smartphone is required to purchase only from the expensive plans, so it is definitely price discrimination when using the cell phone.

Also further note that asside from screen size/weight/battery life an android tablet and an android smart phone are the exact same hardware - the distinction is arbitrary and based on marketing not the physical capabilities of the device.

Price discrimination is illegal when done by a monopoly and it adversely affects competition under the clayton act and the robinson patman ammendment.

Pyrtolin,

my phone is unlocked, Also with an oligopoly there is almost no competition.

[ October 03, 2011, 01:59 PM: Message edited by: LetterRip ]

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Dave at Work
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The Sherman Anti-Trust Act makes price discrimination illegal when engaged in for the purpose of lessening competition.

http://definitions.uslegal.com/p/price-discrimination/

I honestly do not know what passes and what fails that particular test. I do know that I have seen price discrimination for as long as I can remember and haven't exactly heard much in the way of people complaining about it. The most common example that I see is senior discounts or discounts for members of a particular profession or organization. When I go to the movies with one of my parents, they always pay less than I do for the ticket even though we are both seeing the same film in the same theater at the same time. Veterans often get discounts at restaurants. For quite a while after 911 Police Officers, Firefighters, and other first responder types would get various discounts or even freebies at many stores and restaurants. People that join a book club at their favorite book store often receive discounts tied to their purchase history with the store. I have no problem with these types of price discrimination. I guess the question to ask is what is the purpose of the price discrimination and does it pass or fail the lessening of competition test in the Sherman Anti-Trust Act.

quote:
the feature phone can use either of the plans (paygo set amount, or one of the expensive plans), the smartphone is required to purchase only from the expensive plans, so it is definitely price discrimination when using the cell phone.
Perhaps, but what is the purpose of the price discrimination? Is it to lessen competition? If not, then at least as I understand the Sherman Anti-Trust Act, it isn't illegal. It could also be argued that since smart phones use a considerable amount of data bandwidth, the service provider is protecting the consumer by preventing him from using a plan which will require considerable overage charges whenever he
goes over the limits of the pay as you go plan. I know that when I switched to a smart phone, my data usage went through the roof compared to my previous phone. If I still had my older pay as you go type data usage plan I would have been sucking my savings dry to pay for the overages.

Now, I don't like that I have to pay for a 4G plan for my EVO 4G despite not having 4G available in town, but at least I'm able to connect at 4G speeds when I travel to places that do have 4G. Since my phone is perfectly capable of operating elusively on 3G I should be able to choose a 3G plan instead and upgrade to a 4G plan once it is available where I live if I so choose.

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LetterRip
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Dave at Work,

quote:
Perhaps, but what is the purpose of the price discrimination? Is it to lessen competition?
I'd say the purpose is to prevent competition with low priced smartphones. If you have to get an expensive contract regardless of where you got the phone, then it doesn't make any sense to buy the phone unlocked since you are then paying a 300$ - 700$ premium with no benefit.

quote:
If not, then at least as I understand the Sherman Anti-Trust Act, it isn't illegal. It could also be argued that since smart phones use a considerable amount of data bandwidth,
They don't unless used with tethering of your laptop or if they are your exclusive access to the internet. Average usage rates are in the 200 MB per month range; moderate is 500 MB, 90th percentile usage is still less than a GB.

quote:
The service provider is protecting the consumer by preventing him from using a plan which will require considerable overage charges whenever he goes over the limits of the pay as you go plan.
It is impossible to go over your limit for pay as you go. Also you can have notification at various percentages. For smartphones you can have throttling or blocking of data over 3G if you want.
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JWatts
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quote:
Originally posted by LetterRip:
JWatts,

the feature phone can use either of the plans (paygo set amount, or one of the expensive plans), the smartphone is required to purchase only from the expensive plans, so it is definitely price discrimination when using the cell phone.

No, it's price discrimination when there is a different price for exactly the same item for a different group.

It is not price discrimination to charge a different price for different items to everyone. It is logical and normal for a smartphone user to use more bandwidth than a normal cell phone. They are physically different items and the usage pattern is different.

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MattP
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Most fast food restaurants charge different prices for their unlimited soft drink plan, depending on how large of a cup you choose to use it with.
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LetterRip
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JWatts,

First off one is required to purchase the data plan even if you don't want any data at all and disable GSM data for your phone.

Secondly, these aren't 'unlimited' plans - these are all capped plans - 10MB, 200MB, 500MB, 1GB, 2GB, 5GB.

Also, the 'feature phone' doesn't pay less for data using the contract plans. The price for the larger plans is the same regardless of what hardware is used. One is prevented from purchasing a phone only contract or a low data plan, if the hardware is a smartphone.

MattP,

please reread, a dataplan purchase is required even if you want to use zero data via the phone network.

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JWatts
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None of that indicates any kind of price discrimination. Requiring a certain plan with a certain phone is not price discrimination. It would only be price discrimination if they restricted the customers by some arbitrary guideline, say income, sex, race, age, job, etc. And even in that case it still would most likely be legal.

Clubs across the country routinely allow women to enter for free and charge men. That is price discrimination. But it's legal.

Honestly, if you don't like AT&T, then switch to a different carrier.

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LetterRip
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JWatts,

I don't think you are understanding the meaning of price discrimination in the legal context of monopoly - it is offering different prices to different buyers in such a manner that it harms competition. In this case I'm claiming that AT&T is using its monopoly in 1900 MHz GSM Cell Phone service to leverage sales of GSM cell phones and is harming the competition from no contract and used cell phones that utilize the 1900 MHz GSM band.

Requiring a different contract based on an irrelevant categorisation is still pricing discrimination.

Regarding your specific instance it isn't unlawful price discrimination because there is no monopoly/oligopoly and thus the bars that do this don't have enough power in the market to substantially hurt competition. (Although given your example I think you are thinking price discrimination that would fall under different statutes such as equal protection clause - in which case entirely different standards would apply).

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LetterRip
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Regarding switching cell phone service - unless I buy a different phone it is impossible to do so.

There are four carriers but they are incompatible in terms of frequencies used for data and voice.

AT&T - 1900 MHz spectrum for 3G
T-Mobile - 1700 MHz spectrum for 3G
the other carriers are CDMA (actually I think there is one more standard used in the US by sprint, don't recall its name) which is entirely different hardware from GSM/HSDPA.

Only about two phones out there have pentaband HSDPA (Quad bands have either 1700 MHz or 1900 MHz but rarely both), which would actually allow you to choose a different carrier and keep the same phone. (The Nokia E7, don't recall the other).

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ken_in_sc
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Deferential freight rates kept the South in a form of colonialism after the war between the states. Because of the oligopoly of northern railroads, freight rates into the south were cheaper than freight rates out. The point was to keep the south consuming northern industrial goods and prevent the south from exporting anything profitable. This worked for about 75 years. The south started recovering in about 1955. Deferential charges can have this effect.
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LetterRip
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I was reading a site that was talking about smart phones, and it is possible that I misread/understood the text.

It might be that instead of requiring the purchase of a monthly data plan, they mean that you must purchase a gophone data package (5$/10 MB, 10$/100 MB, 25$/250 MB) instead of data for .01 per 5 KB mimimum charge of .01 and the cost is deducted from your gophone payment.

If so then I feel a bit dumb since that isn't particularly as problematic for me.

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JWatts
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LR I've got an off-topic question for you.

Regarding education in the US and the correlation between various factors and successful learning. Factors such as poverty, number of teachers, class size etc.

You seemed knowledgeable on that topic, could you point me to a good source for further reading?

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LetterRip
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Unfortunately I can't provide you with good sources, for some reason I'm drawing a blank right now. I think the last time I spent significant time reading books on education was at least 10 years ago, and while I've read many hundereds (thousands?) of education research papers over the past 10 years, I haven't really kept track of them.

Also getting ready for moving and a conference so a bit crunched for time.

You can probably search on key words in the following to find some sources.

Nutrition, exercise, and stress will play the biggest role - both maternal factors during pregnancy and then the childs nutrition will probably have the biggest influence by a ridiculous margin - you will see a lot of things that correlate with this (poverty, single mother, maternal drug/cigarette/alcohol use). This will also turn up in later factors - ie self discipline; ability to pay attention and stay on task; curiousity, motivation, and ability to engage in abstract thought.

Teacher quality will also be huge - a top 10 percentile versus a bottom 10 percentile is about 2 grade levels or more in achievement per year.

Involved parents will be another huge factor (but a big portion of this is actually the nutrition above - involved parents will on average have way better nutrition for themselves - hence good fetal nutrition; and nutrition for their child).

After that you get to a whole bunch of relatively minor factors.

For class size - a awesome teacher with a huge class can do fine and better with a small class; a poor teacher with a small class will be aweful and moreso with a large class. However the more small classes you have the more teachers you need; and thus the more of the lower end teachers you have to accept. Also more smaller classes means you have to either raise taxes or pay less, and since raising taxes isn't particularly popular small class sizes equals more teachers at worse pay which further reduces the teacher quality - since the high quality teachers have greater number of job opportunities and thus lower pay is a bigger opportunity cost.

[ October 12, 2011, 08:46 PM: Message edited by: LetterRip ]

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