Wednesday, July 11, 2007

Do these guys understand any economics?

WASHINGTON--AT&T's exclusive right to sell the Apple iPhone drew complaints on Wednesday from Democratic politicians, though it was unclear whether they were planning to do anything about it.

"The problem with the iPhone is that the iPhone with AT&T is kind of like a 'Hotel California' service," Massachusetts Rep. Ed Markey said--in a nod to the Eagles hit, of course--during a hearing. "You can check out any time you like, but you can never leave." . . . .

So why did Apple give an exclusive deal to AT&T? That is not a tough question: Apple wanted AT&T to let Apple design how the phone worked. Doing that presumably imposed significant costs on AT&T. What type of phone do you think that Apple would have been able to design if this type of regulatory threat had kept AT&T or any other carrier from making a deal with Apple? Would the market have been better for consumers if the regulatory environment had kept the iPhone from turning out the way that it did?

There is a second problem with the Democrat's reasoning. Let's assume that they are concerned about some type of monopoly power caused by the agreement. In fact, it is hard to see how that creates any more monopoly power than Apple already has. Apple is still the single producer of the iPhone.



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