Some policy advocates think such contracts impair consumer welfare because they make it hard for consumers to switch whenever they feel like it. One simply should note that any consumer can buy a device at full retail price if that is what they prefer.
Most consumers keep demonstrating, though, that they prefer $200 devices and contracts, compared to $600 devices without contracts. If you don't want a contract, don't buy one. Most consumers can figure out that a $200 subsidized phone provides real value.
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4 comments:
Gary,
People don't really like the contract - it's a flawed system that provides that illusion.
If part of the contract is a subsidy, then after 2 years, the monthly service should drop. If I buy a $600 phone and don't want a subsidy, then my monthly rate should be lower.
The carriers don't allow this option. So, if I am going to pay the same monthly rate, I am paying more if I don't get a subsidized phone.
Dave Michels
Hi Dave. I agree that people do not really like the contracts. The point is that they make rational choices: cheaper phones in exchange for a contract they really don't like.
The contract is simply the way a service provider recoups the money it spends as marketing cost to acquire a customer.
The non-contract cost of service is the same as the contract cost, so the only difference is the subsidized cost of the device.
I think it would be better if carriers offered a rate for service only - and if people want to finance or even rent their handsets from the carrier, that should be a separate item. The bundling is causing confusion.
Many people keep their "free" phones for 2-3 years and the subsidy stopped after the first year. The rate should drop, but it doesn't.
Isn't that exactly what Tmobile is doing? Their non-contract pricing is $10/month lower than the contract price.
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