Sometimes it can be hard to tell if a market is competitive or not. How many businesses need to be in a market in order to count as competitive? How big do they have to be? What counts as a business in the market?
Other times, it is easy to tell if the market is competitive. Are businesses doing things that are good for consumers but bad for their bottom lines? If so, it is probably because competition is forcing them to act.
Take, as a completely random example, the world of dial-up Internet access in the early and mid-90s. If you are old enough to remember the likes of Prodigy, CompuServe, and AOL as cutting edge service providers, you probably also remember turning the Internet on and off in order to save money. You remember doing this because back in the day you had to pay hourly for Internet access. As a result users would fire up their modems, do what they needed to do online as quickly as possible, and then disconnect.
Of course, users hated this. No one wanted a running clock in the back of their mind reminding them that every page visited was extra time to be paid for. Slow reading cost money! However, ISPs loved this. They could use the per-hour charge for price discrimination, charging users more depending on how long they were connected. The Internet was exploding, so everyone was becoming a heavier user and payments were going up, up, up. Woe on the child who left the Internet connected when he walked away from the computer for the night.
Why didn’t dial-up ISPs keep their profitable hourly rates? Competition. As Art likes to point out, in the mid-90s there were thousands of dial-up ISPs. By installing a bit of software and dialing a different number, users could quickly and easily switch to whomever was offering the lowest rates. This acted to drive per-hour rates down. By 1996 AOL was offering unlimited Internet access for $19.99 just to keep customers around.
So, if customers prefer unlimited Internet, and competition delivers what customers prefer, what are we supposed to make of the news that AT&T and Verizon are moving away from unlimited data back towards metered plans?