Path: utzoo!utgpu!jarvis.csri.toronto.edu!cs.utexas.edu!mailrus!accuvax.nwu.edu!nucsrl!telecom-request
From: gnu@toad.com (John Gilmore)
Newsgroups: comp.dcom.telecom
Subject: Subsidizing One Product With Revenues From Another is Common
Message-ID: <4618@accuvax.nwu.edu>
Date: 1 Mar 90 11:39:17 GMT
Sender: news@accuvax.nwu.edu
Organization: TELECOM Digest
Lines: 64
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 137, Message 4 of 11


dam@mtqua.att.com (Daniel A Margolis) wrote:

> It does not matter whether the company accused of dumping has designed
> a product specifically for the US.  What does matter is that they have
> been found to be subsidizing their US products with their Japanese
> profits.

Isn't this what AT&T did for years -- subsidize local access with long
distance revenues?  Why is it good when the FCC orders AT&T to do it
and bad when a company (that happens to be from Japan) does it?

> Of course, if the Japanese companies manufacture in the US, they can
> do the same thing and get away with it (perhaps a weakness in the law).

The weakness in the law is the idea that you can regulate cross-
subsidization within a company or a market.  Let's say you "fixed"
this "weakness in the law" so that a wholly owned US company was
unable to "dump" products in the US.  Are you going to force each
product that every company sells to have the same margin?  Suppose Sun
Microsystems *wants* to buy market share at the expense of short term
profits, by selling lots of cheap workstations?  That's exactly what
they are doing, by the way...but I don't hear anybody screaming about
dumping.

Suppose the desktop PC clones market is very competitive but laptops
are still rare.  Should a company that builds both be permitted to
subsidize their desktop machines with their laptop revenues?  Suppose
they only make a dollar profit per desktop PC?  Suppose they lose a
dollar per desktop PC but the cross-support enables them to stay in
the market in the hope of better times?  How does this differ from the
Japanese selling PBX's at low prices to get into a market?

Should Hershey be allowed to sell Hershey bars at 5c even if it costs
them 6c to produce?  Assuming they can stay in business, why not?

The US government spends more than a cent in making pennies, but I
hear no cries of penny dumping.

> [Moderator's Note: Thank you for an excellent rebuttal and contribution 
> to the Digest.   PT]

I don't count a rebuttal as excellent if I can kick a hole this big in it.


[Moderator's Note: The flaw in your analogy between AT&T/Bell System
subsidies to local service from long distance revenues and the
Japanese thing is that AT&T started doing it at a time when we were
striving for universal service -- phones in each household, etc.
Keeping the price of local service artificially low at the expense of
long distance revenues was one way to help spur universal service. And
with phone service, unlike other utilities, or perhaps the electronic
appliances in your home, it takes two to tango, so to speak. That is,
my own phone service is worth more or less depending on many others of
you have service also. If you and I were the only people in the USA to
have phones, chances are we would not bother having them either.

So phone service overall was improved by the cross subsidy since the
low rates for local service prompted more people to get phones, thus
increasing the value of my phone and service.  This is true only of
phone *connections* -- not phone *instruments*. If your instrument
meets certain minimal standards imposed by the FCC, we can communicate
with each other. The Panasonic or AT&T label on it matters not.  PT