Is Apple Paving the Way for Oligopoly?

By Megan McArdle

Commenter Bosco Higgins offers an astute possibility as to why Apple might be signalling that they're willing to cut prices, even though this will just encourage consumers to wait:

If I had to guess I would say it is a pricing signal to its competitors (Kindle, Nook, Sony) saying that if they try to compete on price, Apple is prepared to willing to drop iPad prices. It is the old prisoner's delimma on pricing - Apple is trying to establish a cartel price and scare the other participants from defecting.

It's not a bad guess. Oligopolies can be maintained for quite some time with the right signaling games.  On the other hand, I'm not sure how credible a signal they can send.  Apple may eventually make most of its money from content, but right now it's a vendor of shiny hardware, which it sells at a hefty premium.  Amazon doesn't need to command a premium price in order to protect a brand image; they're a discounter, and that's why people like them.  If Apple starts getting into price wars, it's heading into uncharted and dangerous lands.

This article available online at:

http://www.theatlantic.com/business/archive/2010/02/is-apple-paving-the-way-for-oligopoly/35593/