Parallel Conduct: How ISPs Make The Consolidated Internet Service Market Even Worse

from the making-monopolies dept

Much of the focus on consolidation in the broadband industry has focused on national market share. The problem is focusing solely on national market share implies that large companies are competing, when they don't. Just because there are multiple companies in an industry doesn't mean those companies compete. This is especially true in the broadband and wireless industries. As Susan Crawford explained

These companies don't have to agree in writing to carry this out or even raise their prices; they can simply, within their separate geographic and product territories, bundle and tie their services, buy up inputs that a competitor might need, and refuse to connect to competitors — among many other potential tactics. It's in their interest for these local monopolists to cooperate, because any defection would make the whole system crumble.

What Crawford is describing is parallel conduct, which is when companies that would otherwise compete create a monopoly-like setting without having to merge or coordinate operations. Parallel conduct in the broadband industry is not hypothetical. In 2011, Comcast and Time-Warner Cable sold parts of the wireless spectrum they owned in exchange for an agreement that Verizon would stop expanding its fiber optic network. Essentially, Comcast and Time-Warner Cable paid Verizon to stop offering new high-speed broadband service. (As part of the deal, Comcast and Time-Warner Cable also further divided up the United States geographically, foreshadowing the merger between the two companies.)

The 2011 agreement also resulted in Comcast and Verizon's "joint marketing campaign," where they are charging identical prices for Internet, television and phone service. In addition to charging the same price for the same service, Comcast and Verizon also would strongly encourage customers to buy service "bundles," of Internet, cable TV, and phone service. The bundles themselves are a potentially anti-competitive form of product tying. In antitrust law, tying is presumptively illegal when tied with market power.

Parallel conduct is not, by itself, harmful. In fact, companies imitating one another often benefits consumers. Google, for example, which is widely considered one of the most innovative tech companies of the last decade, has largely offered new services which are already offered by other companies, such as search (Yahoo), email (Hotmail), and driving directions (MapQuest).

There are two forms of parallel conduct: parallel pricing and parallel exclusion. With parallel pricing, companies can mimic monopoly behavior by pricing their products at the same level. Parallel exclusion is where companies can enter into similar agreements with suppliers or customers. For both parallel pricing and parallel exclusion, it is much more likely to occur in industries where there are fewer competitors, and where those competitors compete less within geographic markets. The result of parallel conduct is that a market with a small number of competitors, an oligopoly, acts as one firm, which is referred to—perhaps euphemistically—as a perfect monopoly.

Tim Wu and C. Scott Hemphill wrote an article arguing that parallel exclusion provides a better metric for antitrust enforcement than parallel pricing. In competitive markets, with lots of competitors and low profit margins, companies are forced to price their goods and services at the same price. However, in consolidated, noncompetitive markets, companies may also price goods similarly, through an agreement, explicit or implicit, to reduce competition. If companies are pricing similarly, there is no way to know if that is the result of a competitive marketplace or collusion. Punishing companies that are pricing similarly as a result of competition would be counterproductive.

The deal between Comcast, Time-Warner Cable and Verizon is the most pernicious form of parallel conduct: an exclusionary price control agreement between corporate behemoths. Granted, the agreement isn't exactly news. It happened in 2012. But the Comcast-Time Warner Cable merger has changed the competitive landscape in the industry. Absent the agreement between Comcast, Time-Warner Cable and Verizon, the number of truly national high-speed broadband providers would have gone from two to three. Post-merger, it will go from two to one.

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Filed Under: antitrust, market power, monopolies, net neutrality, oligopolies, parallel conduct, pricing
Companies: comcast, time warner cable, verizon


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  1. icon
    Ninja (profile), 15 Aug 2014 @ 6:42am

    Re: Re: Re: Great story

    I have to ask, where is this?

    Of all goddamn places we are talking about Brazil, a place that suffered with high prices and slow/bad connections not long ago (the speeds greatly improved in the last 3-5 years). Granted it is a metropolitan area but I highlighted this issue as well. The Govt is trying to tackle it using a Federal network that covers most of the country by letting any private entity pay to use such network. So far it has worked sparking some competition where there was none and the pricing for the low end of the speeds (seems to be sitting at 10mbit now) has greatly declined in general.

    t's a good marketing move for them, but I cannot say that I like the idea of monopoly Google fiber anymore than I like monopoly comcast or monopoly TW.

    Excuse me but they are competing in the places where Google Fiber is available. People can still choose not to go with Google. I highly doubt they'd price anything below what's profitable. If you are referring to the free option where your connection is paid by using Google products and being exposed to their ads that's perfectly fine and bundling products together is a very common (if obnoxious) practice in the industry. Except that this is not mandatory at all and by actually paying for any tier you get much faster speeds and you aren't tied to using Google online services. Your fear of Google would be reasonable if the company was acting like Comcast. It isn't. You should be displaying the same skepticism against the usual carriers.

    I am very interested to see how it works out.

    And yet you keep demonizing them. There are successful examples inside the US and we discussed it in the last article this subject came up.

    The current muni deals seem to be based on obtaining internet service from one provider and making everyone take it, which is just another monopoly play.

    You are misunderstanding it. You can still get internet from wherever you want. Period. Nobody is blocking another ISP from installing a cable to your home and providing you the service (the cases where this isn't true are obviously totally wrong). It's just that there usually isn't any other alternative. Some municipalities go for this municipal solution just because the only isp in the city is a stinking pile of shit. Granted it doesn't always solve the problem but it's barely a monopoly if you have other options. If there's no other option then it's another problem that has other solutions (such as Brazil that is using a Govt owned network to provide services to "less attractive" places).

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