[danShumway]

> The only alternative seems to be a hike in rates for everybody.

My naive understanding of the market is that the market doesn't work this way -- you charge what the market will bear. How much a product costs to make has nothing to do with how much you should charge for it; you charge what people will pay you.

So if the market is already buying a product at a given price point, and you find a way to save some money or make some extra money on the side, you shouldn't lower your prices in response unless a competitor forces you to -- and the ISP market has notoriously low competition. You happily take the extra margin and move on with your life.

In the same way, if a margin on a product goes down, but the market still refuses to pay more for it, you shouldn't necessarily expect prices to rise. Sometimes products just have different percentage margins.

In other words, if a company like Apple has good data that people are perfectly willing to buy iPhones at $1200, and they figure out a manufacturing trick that allows them to save $100 on each iPhone they build, they're not just going to drop the price to $1100. Similarly, if Apple has good data that people are only willing to buy iPhones at $1200 (and presumably they do, or else they would charge more), then a buyback or warranty program that loses them $100 per iPhone isn't necessarily going to mean a price increase.

Of course, economic majors are welcome to correct me if I'm oversimplifying this.

[kelnos]

For an ISP in the US, at least, normal market forces are largely irrelevant, as most areas do not have competition.

[hathawsh]

In my area, there is a lot of competition among ISPs, but I have to talk to sales people on the phone in order to get the best price. The prices advertised online are much higher than what individual sales people are authorized to offer. It often feels weird to haggle, but that's a natural effect of a free market.

[orblivion]

I thought about this as well. I guess I'd say you're basically right if this ISP is really a monopoly, and everybody has an Internet connection. But I don't know if that's quite right. "The market will bear" whatever price they're selling at now because the consumer would opt to not buy it at a higher price. I imagine the ISP's optimal situation is a price that leads to fewer than 100% of people paying for the connection, even as a monopoly. "People are willing to buy at X price" isn't really meaningful. The question is always how many people.

I certainly don't think they will pass all of the cost onto the customers; that's never how it works. But, since the costs per connection are still the same, and the revenue per connection is now lower, they probably won't be at their optimum anymore. They'll probably find a new optimum by raising their prices, making a bit more revenue per customer and losing some customers. Basic supply/demand curve stuff. Again, those curves are not quite the same in a monopoly market, but iirc it still applies to an extent. If the monopoly really had total control, they would take the customers for everything they have, and it's not quite that bad.

:shrug: maybe the actual effect will be marginal. I'm not an economist either.