4 ms·

Honest question. Can someone explain to me what's wrong with this sort of "price fixing"? The contract is attached to the iPhone, and Apple doesn't want the c

by orbitur 13y ago

Honest question. Can someone explain to me what's wrong with this sort of "price fixing"? The contract is attached to the iPhone, and Apple doesn't want the contract sold for less than $X. If the carrier doesn't want to do that, they can choose not to sell the phone. What's the issue?

bane 13y ago
Don't always assume that the goal is to prevent the phone from being sold cheaper. High demand items may also merit a higher price and Apple may want to keep the price artificially low. https://en.wikipedia.org/wiki/Price_fixing https://en.wikipedia.org/wiki/Price_fixing "In neo-classical economics, price fixing is inefficient. The anti-competitive agreement by producers to fix prices above the market price transfers some of the consumer surplus to those producers and also results in a deadweight loss." It also send invalid signals into the economy about the value of an item that may create bubbles or unreasonable expectations for low prices that are unsustainable (and therefore anti-competitive). The Diamond trade is a very good example of price fixing where otherwise plentiful and cheap stones are controlled on the supply-side to keep prices artificially high.
- czr80 13y ago
  Your examples are talking about something quite different - they would be relevant if we were talking about Apple and Samsung and Nokia sitting down and agreeing to set prices together. But we're not.
grabeh 13y ago
The specific grounds for the fine by the Fair Trade Commission are not made clear in the brief article however, if as is stated in the article the Taiwanese companies had obtained reseller rights to set a price and then this was being undermined by Apple then this is not particularly fair of Apple to then attempt to set those resale prices. I use the word 'fair' deliberately in reference to the Fair Trade Commission. At the same time, it is likely to be anti-competitive to allow an upstream manufacturer to fix prices with all retailers on the basis that customers are prejudiced and retailers are unable to compete on price. This is the main answer to your question. Also if only one retailer plays ball with Apple then they have a monopoly position again to the likely detriment of customers. The arrangement is however acceptable where the retailer plays the role of mere agent in the arrangement (i.e. takes minimal risk in the transaction as compared to a distributor) as here it is reasonable for the manufacturer to set downstream prices. However here if the article is correct, then the presence of a clear right for the distributor to set prices which is then subsequently ignored by Apple would seem to justify action by Taiwanese FTC. If anything this would be a breach of contract issue also providing another ground for the FTC to intervene. Perhaps in this case, Apple intended to make the contract transparent by granting the right to the retailer to determine resale prices (in compliance with local law potentially) but then behind the scenes exerted pressure. This is pure speculation of course.
stephen_g 13y ago
I agree - I was under the impression that you could have a clause in a contract with a retailer/distributor restricting the price they could charge for your product - I thought it was generally only illegal if you're conspiring with competitors to change prices across the market.
- FireBeyond 13y ago
  You mean like requiring your approval for each of the three major carriers pricing, as done here?
- josephlord 13y ago
  Certainly not in the EU. If you sell it yourself you can charge what you like and there may be agency models where you pay distributors to deliver to retailers at agreed prices but I think in those cases you probably have to own the stock until sold. If you sell to a distributor they can sell a whatever price they like.
chetanahuja 13y ago
"The contract is attached to the iPhone" This phrasing betrays a complete ignorance of how the mobile market works outside of the US. Most markets have decided that a device and the network connection are separate entities and a vast majority of the world's population buys their "device" and "sim card" separately. Hence a device manufacturer trying to set the price of a related but distinct product (the network connectivity) is something like -- to pick a favorite American analogy -- Ford not only dictating what brand of gasoline you'd put in the car, but also dictating the price you'd pay for that gas.
- sbuk 13y ago
  Can you provide examples of where this is true? I ask because you seem to think that the US is the only market where subsidised phones exist. I know for a fact that in the UK and France mobile contracts work in a similar way. I'd go as far as suggesting that most, if not all European networks operate in this manner.
  - coldtea 13y ago
    >Can you provide examples of where this is true? I ask because you seem to think that the US is the only market where subsidised phones exist. I know for a fact that in the UK and France mobile contracts work in a similar way. I'd go as far as suggesting that most, if not all European networks operate in this manner. That is incorrect. It is similar to the US in the UK, but not at all elsewhere. There are some contract deals in EU that go along with a carrier locked phone (like in the US), but most are not. The unlocked phone is the mainstream case. Here is a relevant article with the different practices: http://en.wikipedia.org/wiki/SIM_lock http://en.wikipedia.org/wiki/SIM_lock
    - sbuk 13y ago
      "The unlocked phone is the mainstream case." Nope. Certainly not in 'Western' economies anyway. The link you provided says as much. I know for a fact that it is the same in France, as I have recently lived there and bought a mobile phone. I know that it's the same in Switzerland, as I have family there and have discussed it at length with them.

by orbitur 13y ago

bane 13y ago

Don't always assume that the goal is to prevent the phone from being sold cheaper. High demand items may also merit a higher price and Apple may want to keep the price artificially low. https://en.wikipedia.org/wiki/Price_fixing https://en.wikipedia.org/wiki/Price_fixing "In neo-classical economics, price fixing is inefficient. The anti-competitive agreement by producers to fix prices above the market price transfers some of the consumer surplus to those producers and also results in a deadweight loss." It also send invalid signals into the economy about the value of an item that may create bubbles or unreasonable expectations for low prices that are unsustainable (and therefore anti-competitive). The Diamond trade is a very good example of price fixing where otherwise plentiful and cheap stones are controlled on the supply-side to keep prices artificially high.

czr80 13y ago
Your examples are talking about something quite different - they would be relevant if we were talking about Apple and Samsung and Nokia sitting down and agreeing to set prices together. But we're not.

grabeh 13y ago

The specific grounds for the fine by the Fair Trade Commission are not made clear in the brief article however, if as is stated in the article the Taiwanese companies had obtained reseller rights to set a price and then this was being undermined by Apple then this is not particularly fair of Apple to then attempt to set those resale prices. I use the word 'fair' deliberately in reference to the Fair Trade Commission. At the same time, it is likely to be anti-competitive to allow an upstream manufacturer to fix prices with all retailers on the basis that customers are prejudiced and retailers are unable to compete on price. This is the main answer to your question. Also if only one retailer plays ball with Apple then they have a monopoly position again to the likely detriment of customers. The arrangement is however acceptable where the retailer plays the role of mere agent in the arrangement (i.e. takes minimal risk in the transaction as compared to a distributor) as here it is reasonable for the manufacturer to set downstream prices. However here if the article is correct, then the presence of a clear right for the distributor to set prices which is then subsequently ignored by Apple would seem to justify action by Taiwanese FTC. If anything this would be a breach of contract issue also providing another ground for the FTC to intervene. Perhaps in this case, Apple intended to make the contract transparent by granting the right to the retailer to determine resale prices (in compliance with local law potentially) but then behind the scenes exerted pressure. This is pure speculation of course.

stephen_g 13y ago

I agree - I was under the impression that you could have a clause in a contract with a retailer/distributor restricting the price they could charge for your product - I thought it was generally only illegal if you're conspiring with competitors to change prices across the market.

FireBeyond 13y ago
You mean like requiring your approval for each of the three major carriers pricing, as done here?
josephlord 13y ago
Certainly not in the EU. If you sell it yourself you can charge what you like and there may be agency models where you pay distributors to deliver to retailers at agreed prices but I think in those cases you probably have to own the stock until sold. If you sell to a distributor they can sell a whatever price they like.

chetanahuja 13y ago

"The contract is attached to the iPhone" This phrasing betrays a complete ignorance of how the mobile market works outside of the US. Most markets have decided that a device and the network connection are separate entities and a vast majority of the world's population buys their "device" and "sim card" separately. Hence a device manufacturer trying to set the price of a related but distinct product (the network connectivity) is something like -- to pick a favorite American analogy -- Ford not only dictating what brand of gasoline you'd put in the car, but also dictating the price you'd pay for that gas.

sbuk 13y ago
Can you provide examples of where this is true? I ask because you seem to think that the US is the only market where subsidised phones exist. I know for a fact that in the UK and France mobile contracts work in a similar way. I'd go as far as suggesting that most, if not all European networks operate in this manner.
- coldtea 13y ago
  >Can you provide examples of where this is true? I ask because you seem to think that the US is the only market where subsidised phones exist. I know for a fact that in the UK and France mobile contracts work in a similar way. I'd go as far as suggesting that most, if not all European networks operate in this manner. That is incorrect. It is similar to the US in the UK, but not at all elsewhere. There are some contract deals in EU that go along with a carrier locked phone (like in the US), but most are not. The unlocked phone is the mainstream case. Here is a relevant article with the different practices: http://en.wikipedia.org/wiki/SIM_lock http://en.wikipedia.org/wiki/SIM_lock
  - sbuk 13y ago
    "The unlocked phone is the mainstream case." Nope. Certainly not in 'Western' economies anyway. The link you provided says as much. I know for a fact that it is the same in France, as I have recently lived there and bought a mobile phone. I know that it's the same in Switzerland, as I have family there and have discussed it at length with them.