Perspectives & Strategy

A recent article in an IT magazine complained about lack of competition in Canada’s broadband networks. The problem: only two service providers and a small market. When there are only two providers then the customer can suffer. Part of the problem here is an inability for alternative vendors to leverage existing wire networks. This is not limited to broadband services though. As a society there is greater acceptance of less competition with the number of vendors available reducing in many markets. Is this good or bad?

Generally, price fixing in most markets is generally illegal. Anti-trust laws also forbid contracts or conspiracies that restrain trade. Yet here there is no allegation that in this particular case that the two corporations have colluded. They simply know what drives the other party and act accordingly. In the same industry cost margins are likely to be similar (without a dramatic new approach being present). It is not a case of direct collusion; merely indirect action that gives an appearance of price fixing. Where there is limited competition the prices tend to rise. Customer service also takes a hit in these scenarios, especially when the monopoly vendor knows they are the only game-in-town.

The internet has also been a source of monopoly building, in fact many internet vendors thrive on this. There is nothing wrong with being in a monopoly position provided the customer is not affected.

How can fierce competitors collude? Far from there being any intention to collude the two competitors tend to know each other’s business intimately. They watch each others prices, know each others policies, poach employees etc. They can often ignore the marketplace; most especially the disgruntled customer. This of course can leave an opportunity for a new player in the market; provided the barriers to entry are not too high. The broadband case discussed earlier can represent a high entry cost for anyone entering the market, particularly as it is a regulated industry.

Although in a regulated industry there should be checks and balances in place. Can we be sure that these function in the best interests of the customers?