Economics of Cell Phones

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I was reading an article recently about how cell phone usage has skyrocketed, particularly among the poorest people in the poorest countries.

I'm just wondering--if someone living in a remote rural area of Tibet, with no plumbing at all, can afford a cell phone, then why are cell phone services so expensive in the USA?

hmm good question

Maybe they dont use it as much as we do. We like all the extra stuff. it's not enough to just be able to call someone or have a 2000 style noncolor phone. We text, surf the net, check our calendars, download music and games, and call people on our hpones. Maybe they use it for emergencies/improtant convo only?

There's also a higher demand here...but then again higher demand means greater output which should mean slightly lower prices....

not sure...

Probably has something to do with just how prices for things are lower in foreign countries. Wouldn't surprise me if this is partially the company reducing prices for the service due to the lower demand, and it wouldn't surprise me if some elements of providing service might actually be cheaper over there.

Ideally a firm would like to sell its goods to each person at the highest marginal rate that individual is willing to pay, but this is not usually practical in most market situations. If they can divide the market up by geography or some other factor, they can charge higher prices where people are willing to pay those prices, but still profit by selling to others at a lower price.

That would apply if you have a monopoly. But, in the USA, there are plenty of cellular telephone companies competing for business.

If you're comparing the US to Tibet, my best answer would be because people in the US can afford it?

But it isn't perfect competition therefore, firms are not price-takers. It is a fact that prices for various goods vary depending upon the nation, and it is also known that a major reason why these differences aren't as large as they could be are issues of geography such as how easy it would be to have profitable resale of the good.

There are only a few companies who have nationwide cell towers and provide service. I think they probably got together and agreed to fix the prices to rip off consumers. One reason is the high cost of labor in the US. People in the US feel they should be entitled to earn far more than people in other countries and a few greedy people even set up labor unions to gouge their employers to force them to pay them a ridiculously high amount of money which is passed on to the consumers who buy their products.

Cell phone usage is also increasingly more common among poorer people in North America as well. The reason is simple: prepaid service. A lot of people don't actively use the cell phone for more than an hour or 2 total over a given month. On something like that, prepaid cell service is cheaper than getting a landline. Also, unlike postpaid cell service and landline service, prepaid cell service requires no credit check, so people that CAN'T get a landline because of bad credit or being too poor, can get a prepaid cell phone plan no questions asked.

As for cell phone services being so expensive in the USA, I'd say they're dirt cheap. Come to Canada, Ted Rogers will have you running back screaming. We don't have any unlimited plans whatsoever (using my hacked iPhone here is pricey), and we get probably about half the airtime for our money as the American plans.

never thought i'd see someone arguing that the unions are the greedy ones...

That seems odd. I have seen people argue all sorts of institutions are greedy, with unions certainly not excluded. Unions are arguably a force that hurts non-unionized labor and can hamper with industrial production, and that use political force to benefit their ends(which can be argued as self-serving at the cost of other parts of society). You lean left and go to George Mason though, right? Just hang around their economics department and you will probably hear economic arguments that you have never heard before as the economics department there is one of the best known libertarian-leaning economics departments in the nation, with relatively interesting insights.

Well, what do these whatever-leaning economics departments have to say about the economics of cell phones?

I know that you can get prepaid cell phones for 10 cents per minute. However, when you have a teenaged daughter, that winds up being impractical. So, okay, we got a Verizon plan with unlimited texting. With another phone for my son and one for me (which we seldom use), it comes to about $150 per month (with fees, taxes, plus my government-employee discount). This is a lot more than my landline--about $65 per month for unlimited local and long distance in the US.

I know that you can get unlimited local and long distance with Skype for about $3.00 per month. Then, there are special WiFi phones that you can buy for Skype--I understand that it works just like a cell phone, as long as you are near a WiFi source.

In a free capitalist society, people earn what they are worth based on supply and demand for their occupation. The economy is more efficient and benefits society more when everyone accepts their fair market wage. If too many people want to work at the same job, wages go down which encourages some to choose other jobs. If not enough people want the same job (such as nurses), wages go up until they get enough people. Labor unions disrupt the economy and hurt everyone by demaning more money than they deserve. If people think they deserve more money, they can get another job. Union people already know they can't earn more money elsewhere which is why they don't quit and work somewhere else. Instead, the gang up on their employer and threaten to strike if they inflated wage demands aren't met. Unions aren't much different than companies getting together to fix prices to gouge consumers. If you want to see how bad that is, look at OPEC. The countries get together to limit oil production to drive up the price of oil. They are the reason oil and gas costs so much. Unions are declining because companies are getting smart by moving overseas to escape hostile union employees.

So, are cell phone companies conspiring to gouge consumers?

Another possible reason why cell phones are so popular in poor countries is because technically they are cheaper to maintain.

Put up a tower, and you've got a 2 mile radius covered.

With landlines, you'd actually need hundreds to thousands of lines to each residence in the area. And then you'd also have to consider that not everybody in a third world country actually has a residence to carry the landline in the first place.

Maybe the telecoms find it more profitable overall to sell the service in those countries based on what it actually costs rather than based on convenience of it. In first world countries, this isn't as common, as shown in the following examples:

Digital TV costs carriers significantly less money than analog because the video is compressed. However, since the macroblocking on digital signals is a lot less noticable than noise on analog signals, they get away with charging more money for it.

DVD's have almost always cost more than VHS, even when both were out at the same time, all things equal on both, because DVD had better picture quality. Even though the actual disc cost a lot less to produce.

And cell phones cost a lot more than land lines here because of the convenience of mobility. Even though the cost of a tower to serve an area is cheaper than installing landlines in an area, service costs are cheaper because they're localized to the tower, and data transfer is cheaper because voice is over a compressed digital signal.

Apparently so. There have been a few situations related to that here in Canada, and one court case for sure.

The one involved a small town that did a petition to have walmart come there. Walmart did, though the small businesses didnt want it and suffered. Most went out of business. The town thrived because of walmart though.

As you probably know, there is a push to unionize walmart. Well, the union organizers chose that little town to make a beach head. The people there, particularly the walmart staff would be greatly pressured to unionize.

Walmart, of course, said that if it happened they would close that store. It isn't unexpected that they would protect their interests. Not exactly nice of them.. but the union isnt exactly innocent either.

Neither side is overly concerned with the fate of that little town. The pressure the union organizers are putting on that town could be called greedy. They chose tactical advantage over the people that they wish to sign up for their union. If they do win(have won?) then the store will close and the town will die. The union wont stick around any longer than walmart. It isn't unexpected that they would protect their interests either.

From there, regardless of the outcome, the battle will be repeated in the next small town with a walmart.

Both sides are greedy.

http://www.canada.com/reginaleaderpost/ ... fb1fc98089 tells it better than I could.