The NBA Pass: When Monopoly Met Oligopoly

My post, "The Apple Conundrum," showed what can happen when monopoly and oligopoly are in conflict with each other. But what happens when the two get together to sell a product?

Oligopoly pricing of necessary goods

Most Americans realize oil prices have very little to do with supply and demand. The oil industry is controlled by oligopolies. These "cartels" control the price of oil and gas. Gasoline is largely an inelastic good, meaning most Americans can't get by without it. So the price of gas is easily influenced by both OPEC and by large domestic refiners of gasoline in the U.S.

But what about products that are not a vital necessity? Could prices of elastic goods be legally fixed by a small cartel of big retail companies working with a monopoly? You bet! Let's look at an example.

Monopoly/oligopoly pricing of luxury goods

During the regular basketball season, the NBA Pass costs a bit under $200 to see all of the games in the U.S. A slightly less expensive version allows you to follow all the games of your five favorite teams.

Wiki.answers.com says "there is no official number, but probably around millions" of NBA fans exist. You can be sure that $200 per fan is pretty important to both the NBA and the broadcast companies that get a piece of that fee.

The National Basketball Association (NBA) is a trade association similar to OPEC. Unlike OPEC, the NBA can set a monopoly price because, as it reminds viewers before each game, it owns the exclusive "intellectual property rights," i.e., the copyright, to all of the broadcasts of games played by teams that belong to the Association. Federal law and the courts protect the NBA's right to fix the price.

You know the NBA Pass is monopoly-priced because all telecommunications services in the U.S. offer the NBA Pass for the same fee. Pay it, and the ardent fan can watch games on TV, a mobile device, or their computer. That's great!

What's wrong with monopoly/oligopoly pricing?

What's bad about the NBA Pass? The whole point of cable/satellite media was to open up the market for telecommunications broadcasts from outside one's local viewing area. This is exactly what the NBA Pass is curtailing.

You may not be able to find basketball games you want to see because the NBA Pass exists. I can't speak for all the services offering this Pass, but here is what the DirectTV package I have does to get its customers to buy the NBA Pass.

In its search directory for TV programs, DirectTV only lists its NBA Pass stations. During the regular season, DirectTV doesn't list basketball games on TNT, ESPN, or NBA TV, three stations included for free in most cable packages.

Finding a basketball game in a haystack

Why would DirectTV do this? Oligopolies are not as free as monopolies to gouge customers on price. The NBA can set an exact price for its exclusive Pass each month, but not so the broadcast companies. Media customers can, and often do, switch from one provider, or from one kind of media to another. Telecommunications companies themselves foster this kind of behavior by offering low prices to new customers.

For this reason, DirectTV can't and doesn't force viewers to buy an NBA Pass. It simply makes most of the basketball games offered via stations included in its cable packages invisible in its program directory.

By accident I discovered that if a non-Pass-holder is on an NBA Pass station as a game begins, DirectTV might search for a free cable station that also offers the same game. But, if you want to pre-record a game or make sure it's on, you'll need to go to the Internet, get your team's schedule, then scroll through DirectTV's channel guide for the scheduled times of each game you want to see.

Think this is a trivial issue? Get your wallets ready, sports fans. Your $199 NFL (National Football League) Sunday Pass is coming this summer! What's next? Golf? The Olympics? Baseball?