Path: utzoo!attcan!uunet!samsung!uakari.primate.wisc.edu!sdd.hp.com!decwrl!hayes.ims.alaska.edu!accuvax.nwu.edu!nucsrl!telecom-request From: mbw@unix.cis.pitt.edu (Martin B Weiss) Newsgroups: comp.dcom.telecom Subject: Re: More COCOTery Message-ID: <13232@accuvax.nwu.edu> Date: 10 Oct 90 12:56:11 GMT Sender: news@accuvax.nwu.edu Organization: Univ. of Pittsburgh, Comp & Info Services Lines: 68 Approved: Telecom@eecs.nwu.edu X-Submissions-To: telecom@eecs.nwu.edu X-Administrivia-To: telecom-request@eecs.nwu.edu X-Telecom-Digest: Volume 10, Issue 727, Message 3 of 11 In article <13203@accuvax.nwu.edu> John Higdon professes: >X-Telecom-Digest: Volume 10, Issue 725, Message 3 of 13 >On Oct 9 at 2:05, Martin B Weiss writes: >> Perhaps more "real people" should be investing in COCOTs as a way to >> turn around the market abuses. Economic theory would suggest that an >> correctly programmed phone charging competitive rates placed next to >> an incorrectly programmed one charging much higher rates would be more >> successful. >But this is the flaw in the whole concept of COCOTs. In a free market, >informed buyers make free and informed choices. So far, this has not >been possible with pay phones. >The other side of the coin involves informed choices. There was a time >when a Pac*Bell phone and a COCOT were installed side-by-side at a >store near Stanford. I stood and watched as one person after another >walked up to the COCOT, ignoring the utility phone. Most of these >people made simple local calls, but for some reason the COCOT seemed >more attractive. (Yes, the Pac*Bell phone worked.) >A public phone is supposed to be an instrument of convenience. One >doesn't usually walk or drive around "shopping" for the best payphone >bargain. Back in pre-MFJ days, it wasn't necessary. I agree, John. In fact, the issue of informed choice is much more involved. In a recent paper that I wrote and submitted to the FCC on the NPRM, I argue that informed choice is virtually impossible because of delayed price feedback -- you don't know how much an operator is going to cost until you get the bill, several months later. The literature on the economics of information, such as price search behavior, is based on immediate price feedback (for example, shopping for shoes or baby furniture). It has been able to explain things like price dispersion and the clustering of similar merchants, etc. Even with immediate price feedback, fairly strong information is required of the consumers in many circumstances similar to the AOS case (i.e., where assymetrical information exists). I think that the only real solutions to this problem would lie either in price regulation, as many consumer advocates and legislators suggest, or in requiring a display on telephone instruments that displays to the consumer the cost of the call in progress (or a good estimate thereof). The latter would solve the delayed price feedback problem. The other thing complicating the AOS/COCOT problem is that the competition faced by AOS's is by other AOS's, not by consumers. Thus, we would expect commissions to rise as one AOS tried to get the business of a hotel or COCOT from another AOS, because that is one of the primary modes of competition (of course, there is also competition in service). The only factor that dampens this price spiral is consumer familiarity with a particular telephone or hotel (because, in principle, each owner negotiates a separate deal with the AOS). Once consumers realize that a particular instrument or organization is a rip off, they will avoid it, which tends to moderate the prices. The problem, of course, is with a "new" or unfamiliar instrument. What I meant to suggest in my post is that if enough "ethical" people owned these phones and programmed them correctly, perhaps we could reverse some of the less favorable trends that we all see. Martin Weiss Telecommunications Program, University of Pittsburgh Internet: mbw@lis.pitt.edu OR mbw@unix.cis.pitt.edu BITNET: mbw@pittvms