Monopoly pricing to a captive market!

Economic theory tells us that in most circumstances, monopoly power will lead to higher prices for consumers. Sometimes governments may intervene, especially in the case where there is genuinely no competition and the good or service is perceived as important. But what if it literally is a “captive market”?

If a fifteen minute phone call home cost you £11 then it is unlikely that you would call very often. In any case, there are other options to communicate such as mobile phone calls, texts, Skype or just simply visit in person. However, these other options are not available to prison inmates in the USA! They have to pay what is being called “predatory” prison phone rates due to agreements between the phone companies and the state prisons. The phone companies bid to win the contract to be the exclusive provider of phone services to a prison and this often involves commission being paid for each phone call. This cost all gets passed along to the inmates and their families.

While some may have little sympathy for the inmates, an interesting class discussion could be had on the costs and benefits of allowing this high pricing. The article which can be found here details some of the arguments and these could include

Benefits
- revenue raised helps to fund prison activities
- fits with the idea of punishing inmates for their crimes
- a disincentive for inmates to be organising crime from prison

Costs
- “a tax on the poorest people in our society” - the inmates families who end up having to pay are often very poor
- hinders rehabilitation / reintegration into society as well as relationships with family members (particularly children?)

You and your class may be able to think of some other factors and you can then lead that into a discussion of evaluation - which is the most important factor (and therefore do you support the high prices or not)?

More information can be found at the website for Prison Phone Justice.