Product Bundling and Exploitative Pricing in Prison Telecommunications Contracts

The Federal Communications Commission (FCC) regulates the interstate rates for inmate calling services, and over the years, has made some progress in lowering rates from egregiously high historic levels. However, correctional facilities, in large part, rely on the same provider for both voice and other digital services, and this bundling appears to increase costs of communication services to the incarcerated population. In this paper, we briefly review the literature on multi-product monopolists and effect on rates in a setting where the same providers services both the regulated and unregulated product offerings. We then empirically show how bundling appears to impact calling rates. We find that bundling appears to increase the probability of a site commission being offered and this in-turn leads to high-voice rates, after controlling for other observables. We also discuss how bundling distorts the choice of contracts, through a providers’ ability to offer higher site commission. In an environment where demand is fairly inelastic and the incentives of the decision-making authority is not aligned with those of the end-user, there are price distortions that negatively impact the end-user