Do you know how much infrastructure and sunk costs it takes to set up a cellular network - two towers every 3 miles - and thats just the start. In your fantasy scenario new cell phone providers miraculously appear out of nowhere and suddenly start offering services. In reality it will take years and years to set up a netowrk and that assuming these new entrants in the market have millions lying around just waiting to be used to set up a network.

You need to differentiate a bit between products before trying to apply your theiries universally. Your theory works if two vendors were selling onions or even if there were two or more competing shops - but does not scale to cellular networks.

This is backed up by looking at the US cell phone industry where there is major consolidation going on - so much so that now there are only about 4 major players left in the market and cell phone call prices in the US are ridiculously high compared to the rest of the world averaging about 0.25c/min (yes there are deals and plans et al.)

Today BTVL is making some of the biggest profits in India Inc (at least in its size category), while Reliance Infocomm is wallowing in losses (and has plans to offload almost a million customers).

A company with bad strategy can, not just ruin itself, but also the industry. For example, one match fixer can ruin fan interest big time in a sport. If Reliance goes down it will be a big blow for the industry as a whole in the longer run. So it is incorrect to say that lower prices, which the consumers love and competitors dont, is always good for the industry.

Having said that, if TRAI does not believe a pricing pattern is predatory, I would tend to believe them.

Not only that, they also tamper with CLIs and illegally route international calls as STD or locals thus avoiding dues to MTNL/BSNL. The only thing TRAI does is asks them to pay fines just “equivalent” to the amt they have pilferaged(sometimes even less). They don’t account for the fact that Reliance’s entire customer-base is solely because of these low-entry costs.
I won’t even start providing the links. Google does a better job.

And I have seen it personally when my friend from US used to call Bangalore using Reliance India Calling Cards.

Ofcourse we know, most corporates employ smart techniques to avoid tax and such, but it doesn’t even come close to broad daylight robbery and loot like this. What is that they say abt..”doing by day what others do by night”. That it is.

Suhail, I don’t condone Reliance’s unethical practices and I think they should be punished for all the fraud they’ve perpetuated. But in this case, they’re not wrong, and it’s the other cellular operators who’re whining.

Ck:
You do not seem to getting the irrationality of predatory pricing — thus it would be you who is wallowing in a theoretical world as opposed to practicalities.

Now predatory pricing is where the company sells at a loss or where its prices are just above its marginal (including running interest) cost i.e. it has a barely sustainable profit margin.

Consider the case where the predatory company hasn’t broken even. If the capital cost is high as for e.g. in telcos, this low pricing entails a far more distant break-even.
Now, I presume you might deem this unacceptable only if the company requires a monopoly to sustain and/or break-even.
Considering that this was a high capital cost venture, the running interest costs would be huge; this is practically suicidal!

If you ask me, it’s in high capital cost ventures that it would be even more irrational for a company to keep its prices unsustainably low.

If on the other hand, one company’s *sustainable* price is above the other companies’ due to various reasons (cf. Walmart, Reliance) asking it should jack up its price to the higher levels of its competitors seems ridiculous to the point of hilarity. Ck: Are you suggesting that?

If Reliance jacks up prices after cornering the market, the high entry costs (in lieu of future profits) will be bearable for new players.

is bases on what study. Have you or has anybody actually run teh numbers to see if this in fact true. You would like it to be true but is it reall?

Seve times six - a classic example of long term predatory pricing is the cable television distributors (in the US at least). There are only a coupel of cable companies now and its impossible for any other player to enter in - why - because all of the lines have already been laid down years ago at great expense. It is virtually impossible for a new player to break into the market because of teh huge costs involved in laying down hundred of miles of cable. As a result the American consumer pays some of the highest costs in the world for cable V - usually aboyt $40/month (Thats about Rs. 1500/month - don’t know what teh price is in India now but it was nowhere even close to that when I was there last).

So what does one do now? The cable companies have long since broken even (some of the cabling was done in the 70s).

YOu have to consider teh facts in markets where there are huge barriers to entry and infrastructure whose life span in measure in decades not year.

There are in fact numerous examples of this:
- cable TV
- Internet services
- cellular services
and ter eis no shortage of govt. egs as well
- subway systesm
- water supply
- electricity

all of teh abpve require large anounts of infrastructure and very often space is also an issue ( you can have 3 diff pvt systems in one city)

One could then argue about the problems of monopolies in large infrastructure products, but that is still orthogonal to the point of the above post which you were contesting:
that predatory pricing is actually irrational, and there is no single documented case of success via predatory pricing.