On 21/01/2008, at 10:49 PM, Tom Vest wrote:
In the absence of competition (and esp. in the presence of risk of empowering competitive entrants), supply has no general/necessary effect on prices at all. So excess capacity of a product that is completely monopolized (or priced by cartel fiat, ala OPEC or SC) is largely irrelevant.
It goes a bit deeper than that when the monopoly can compound the problem my artificially constraining capacity by underspending on infrastructure (e.g., only lighting one pair on a multi-pair cable) So infrastructure spending can (and does) affect the price. We get that every day in .au (Transmission on the monopoly route between Melbourne and Hobart costs 3 times more than transmission between Sydney and LA; and other potential cable operators have always known that the monopoly has an excess of supply hidden away somewhere which they can roll out at bargain basement prices if a competitor ever arrives in the market)
[ housing ] Come to think of it, our sector has been struggling with its own roughly similar terms-of-exchange crisis since about 2004-2005... arguably driven by very similar prior circumstances as well... worth investigating a bit further perhaps...
I think the dominant factor that the American internet sector has been grappling with goes back further than that. It has its origins in the dot-com boom, when lots of people who didn't have any real money rolled out enormous infrastructure buildouts. When they inevitably went broke their infrastructure was bought at cents in the dollar, enabling the current generation of Internet companies to behave as if the infrastructure they're using was a lot cheaper than it really is. So hardly anyone has been selling below cost, but almost everyone has been selling below replacement cost. So everyone can extract profits for years, making out like bandits as they grow in to the excess capacity that was installed between 1999 and 2001, and they won't have a day of reckoning until they run out of capacity and find that they haven't been earning enough from their networks to service the debt they're going to need to take out to perform the next round of infrastructure upgrades. Example: You cannot seriously expect me to believe that the price of transatlantic connectivity actually reflects the cost of laying cables across the Atlantic. It defies common sense that a Gig-E tail from NYC to London is priced within an order of magnitude of a Gig-E tail from NYC to Boston. Metered charging systems are, to me, evidence of a realization that the business model underlying much of the Internet's last five years is unsustainable. You guys might think they're a novel and unwelcome arrival at the moment, but give it a few years and we'll see what happens :-) - mark -- Mark Newton Email: newton@internode.com.au (W) Network Engineer Email: newton@atdot.dotat.org (H) Internode Systems Pty Ltd Desk: +61-8-82282999 "Network Man" - Anagram of "Mark Newton" Mobile: +61-416-202-223