Insufficient competition frequently leads to collusion. Thus, free markets may not provide socially desirable results. Government regulation may sometimes improve market outcomes. Is the market for text messages an example of this? According to a June 16, 2009 story provided by Reuters:
U.S. wireless carriers Verizon Communications and AT&T took issue with assertions that they colluded in setting prices for text messages, saying on Tuesday that prices for most customers had fallen and the market was competitive.
Sen. Herb Kohl, chair of the Senate Judiciary Committee's antitrust subcommittee, said he was concerned that the four largest cell phone companies doubled their text message rates from 10 cents in 2006 to 20 cents in 2008.
"These sharp price increases raise concerns. Are these price increases the result of a lack of competition in a highly concentrated market?" he asked, adding that the subcommittee had urged the Justice Department to scrutinize any future mergers or allegations of anticompetitive practices in the industry.
But the general counsels of both Verizon and AT&T argued that the price increases affected 1 percent of text messages sent because most consumers bought volume plans that lowered the per-message cost.
"The faulty notion that prices for text messaging have risen derives from an unduly narrow interest in the trend of a single pricing option for text messaging services, the pay-per-use option, when the vast majority of AT&T's customers do not choose that option," said Wayne Watts, general counsel of AT&T.
Watts and Randal Milch, general counsel of Verizon Communications, said that about 17 percent of their customers were on a plan that had them paying for each text message.
They also each denied that their companies colluded on pricing.
"The market evidence shows fierce competition across the wireless market," Milch said.
(Reporting by Diane Bartz)