Econ Paper

Submitted By fireshack
Words: 803
Pages: 4

“Call It” Competition

The success of any company is directly dependent on the competition. Competing companies influence each others decisions in a constant struggle to remain the top competitor. An oligopoly is a situation where there are very few producers of a product or providers of a service that compete for the consumers dollars. Each company influences company actions on an ongoing basis to strive to stand out to the consumers. Verizon Wireless is an oligopoly because it is in constant competition with Nextel/Sprint and AT&T/Cingular to be the number one cellular phone service provider. There are a few more cellular companies but the number is small due to entry barriers. A barrier to entry is anything that prevents outsiders from entering a market such as patents, copyrights, professional certifications or strict qualifications.
When cell phones and cell phone service companies first began, the only company was AT&T. In 1947, AT&T started mobile telephone service in the United States. In the 1950’s the first car phones were developed. These phones were heavy, large and operated on the car battery. Since AT&T was the only company to offer the service, it was very expensive and only the very wealthy could afford to have them. Due to supply and demand, over the years the technology has advanced and the cell phone is now common in every household. The service however is not the same in every household. As the technology progressed other companies formed. Verizon Wireless, Nextel/Sprint and AT&T/Cingular are now the top providers. Each of these companies is an oligopoly. All of the companies concentrate on the percentage of the market they control. A fluctuation of as little as one percent can be a major financial loss or gain. In the graph listed below, AT&T/Cingular has the highest percentage of customers. Since this company is in the top position, AT&T/Cingular could be referred to as the “price leader”. When other companies follow the price leader, it tends to keep the prices high and is not good for the consumer. When companies challenge the price leader, the prices drop. Each company watches the others like a strategic game of chess. When one company makes a move to become more appealing to the consumer, the others are soon to follow with a similar offer. In the cellular service industry, the profits come from the number of customers signed up for monthly service. The companies constantly compete by offering “deals” that make the consumer think they are saving money or getting a great deal. When Verizon Wireless offered “free phones” the public was anxious to try out a cellular service. The other companies soon offered “free phones” with a carrying case and a free car charger. The companies do not make the biggest profits from the phones. The biggest profits are made from consumers agreeing to the monthly service fee, exceeding the allotted monthly minutes, late fees, roaming fees and penalty fees for cancelling a contract early. None of these hidden costs are in bold print when the consumer signs up for the service. Each company tries to offer…