What do you do when you rival in a duopoly raises its prices to essentially match yours? You increase your prices,
too.
Huh?
Sirius’s CEO Mel Karmazin speaking at an analyst’s conference (suspiciously close to spring training venues) said that
XM bringing their price up to meet Sirius’s means that Sirius can choose to raise its prices because it offers superior
programming though less sophisticated equipment.
It’s a strange logic, I have to say, because it means you expect the market to understand and value the difference in
programming choices at a level that I’m not sure is practical. With 150 channels or thereabouts on both services, a
careful shopper may scroll down the list and do side by side looks. But I doubt that most people spend that much time.
They either have a radio factory installed or as a dealer option based on one or two factors, such as baseball or
football or NASCAR or (if you’re like me) public radio programming.
In the DVD rental business, NetFlix countered Blockbuster’s price and late fee moves by lowering its price because
they’re offering a commodity service that people may differentiate between less. But there’s risk there, too. My
brother-in-law stopped his Blockbuster subscription after the late-fee policy was revised: he says there are no longer
any videos in stock because people keep them for days and days. NetFlix has constant churn as people return DVDs to get
more.
XM and Sirius might be advised by that industry to understand that the small points of consumer behavior are much more
important than ones that they spend all their marketing money on.
Reverse Price Competition
Reader Comments
(Page 1)2. If satellite radio were a scarce necessity, it would make sense but in a real world competitive environment this thinking falls apart. The market LOSER (in terms of market share) doesn't have the power to raise prices period. Maybe AFTER Howard shows up AND they gain a significant market LEAD, they can think about raising prices. Otherwise, Melly is going to drive them Sirius into the ground.
3. Sirius ups the price, I am going back to XM...a price hike is enough for me to switch back..this is insane, they are going to kill the industry before it even gets started.
Posted at 4:15PM on Jun 16th 2005 by DQ
4. Uh, what did he mean by "less sophisticated equipment"?
Certainly, it didn't mean "cheaper" as Sirius radios still seem to cost more than XM.
Does it mean "easier"? Seems to me that both services are equally as difficult or easy to use.
Maybe he just meant that XM has a nicer lineup of radios, which I would say is correct.
5. Interested...
Interested...
suddenly lost interest.
Sorry sat radio - but if this is what I have to look forward to, I'll stick to CDs, iPods and FM (shudder). Not worth the hassle at these prices. I thought $10 per month was high - now this?!
Posted at 4:15PM on Jun 16th 2005 by P
1. This makes perfect sense. Competition always drives prices up. It's the natural way in a capitalist economy. It's good that there is only 2 sat rad companies or else the prices would really soar!
But seriously, what is the exact definition of price fixing and when do these price hikes become illegal?
Message to Mel: I love sat rad, but I don't love it that much. If you raise prices I'm walking. This is radio were talking about! I'm not going to pay that much for it. I'll go get a hd radio in year or two and live with that.
Posted at 4:15PM on Jun 16th 2005 by Monmin