“Oligopoly and the Indian Telecom”
Course title –Managerial Economics
By: Prof. Santanu Gupta
Assignment by: Ms Charu Sharma
To begin with all are competing with each other to leave their mark and be profitable than others and one of the most important case of such kind of imperfect competition is termed as oligopoly.
Something which is widespread and the only difference we make out is that they are more concentrated in a competitive market as compared with monopoly, is another way to describe Oligopoly. For sure competition is seen in the Oligopoly as well which leads to almost the same services or approximately the same prices on the same products with minor variations.
The classic case of Oligopoly is the cellular market of India
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Oligopoly in any industry is the power in the hands of few and one influencing the activities of the others. It could be any industry for that matter example airlines, beer Industry, mobile phones and many more. When you dig the matter and try to analyse why is this encouraged? There are so many questions which hover your mind in terms why other players cannot enter? So on and so forth. There are multiple factors behind it along with the PROS and CON.
Interdependent decision making is commonly seen in the Oligopolistic market and this is primarily while introducing any new business strategy or could be related to the setting of price, product lines etc. Therefore interdependence rules the market as it leads to major changes across the market and competitive reactions are gauged before announcing any
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Additionally few other points to be noted which are really not that easy to be taken up while entering a market of few strong players like initial high set up cost, licenses, government regulations, patents and copyrights.
Homogenous nature of the Telecom Industry-All the products are same and companies dealing cannot offer anything out of the scope so it becomes all the more powerful feature for them. Further to elaborate there are few oligopolies like leather which although have differentiated or heterogeneous products but the base product which is leather is same for all only the product line could vary.
When the market is controlled by a small number of big sellers and for any new company it is not easy to enter and establish owing to valid reasons mentioned above and we can experience this in the Indian telecom
An oligopolistic market is one that has several dominant firms with the power to influence the market they are in; an example of this could be the supermarket industry which is dominated by several firms such as Tesco, Sainsbury’s, and Waitrose etc... Furthermore an oligopolistic market can be defined in terms of its structure and its conduct, which involve various different aspects of economics.
Many utilities are monopolies by having the entire market share in certain areas. With deregulation of these utilities, the market becomes open to competition for market share to begin. In terms of regulation of monopoly, the government attempts to prevent operations that are against the public interest, call anti-competitive practices. Likewise, oligopoly is a market condition where there are minimal distributors that have a major influence on prices and other market factors. This causes market failure, especially if evidence of collusive behavior by dominant businesses is found.
An oligopoly is “a market situation in which relatively few sellers [like Burger King, McDonald’s] compete and high start-up costs form barriers to keep out new competitors [like Five Guys Burgers and Fries]” (Boone and Kurtz, 2012, p. 80). Within this competitive fast food burger industry, the main product being offered is a hamburger.
Oligopolies are a type of market structure evident in Australia, which is comprised of 2 or more firms having a significant share of the market. In an oligopoly the few firms sell similar but differentiated or homogenous products and is characterised by a large number of buyers making it a form of imperfect competition. This market structure is evident through the Big Four Banks, Phone Industry - Vodafone, Optus and Telstra.
Oligopolies have been around ever since there is trade. However, it has only recently gained grounds in this age of globalisation. Never before has oligopolistic competition been so fiercely contested across so many industries.
There are many models of market structure in the field of economics. They include perfect competition on one end, monopoly on the other end, and competitive monopoly and oligopoly somewhere in the middle. In this paper, we will focus on the oligopoly structure because it is one of the strongest influences in the United States market. Although oligopolies can also be global, we will focus strictly on the United States here. We will define oligopoly, give key characteristics important to the oligopoly structure, explain why oligopolies form, then give an example of an oligopoly in today’s economy. Finally, we will discuss the benefits and costs in this type of market structure.
Barriers to entry - Sunk cost, technology, economies of scale, limiting pricing and brand loyalty of incumbents can all be barriers
„« Barriers to entry are typically high, it requires a very large amount of money and expertise to enter the industry. The industry is consolidating not growing.
The article “Beyond United: How oligopolies hurt Americans’ pocketbooks” written by James Downie for The Washington Post discusses the financial issues that arise from oligopoly control. The article explains how, because of mergers, the airline industry has gone from nine major companies to just four. The author argues, “Travelers can’t avoid higher fairs and fees unless they choose not to fly” (Downie). Downie brings attention to the growing profits for the consolidated airline companies while consumers pay the same or higher prices. He also explains how the drug industry operates as an oligopoly with only three companies controlling 75 percent of the market. These three companies control drug prices and touch every wallet in America. Downie
Barriers to Entry: The entry barriers in the market are relatively low, making it easy to access. However, as the market is saturated it could be unlikely for new companies to decide to start new enterprises in this field.
In today’s telecommunication market there is a lot of competition by industry giants such as Sprint,
•Monopolistic competition- When an industry contains many rival firms, each of which has a comparable but at least slightly different product. Restaurants, are an example, all serve food but of different types of food and in different sites. Manufacture costs are above what could be attained if firms sold equal products, but consumers have an advantage from the variety.
Within these categories, many sub-markets branch out. Competitive Markers are the most common, having many sellers providing similar products to many buyers. Competitive businesses make profit based off of the relationship between net and gross income, and depend on providing a more reasonable price than its competitor. This type of market is seen mainly with a capitalist economy. Monopolistic Markets are similar to Competitive, but they differ in the type of product. Monopolistic businesses provide differing items that all provide a common service. A Monopolistic business gains profit by providing a product that the same basic service as another business, but differs in small details that contour to different types of buyers. The auto industry, proving scooters, motorcycles, automobiles, and other forms of differing transportation is an example.
An oligopoly, is when there are only a few number of companies that control a specific market. The barriers to entry can be both legal/political (ie. number of licenses awarded to cell phone operators) to the fact that the companies themselves create a "cartel like" attitude effectively brushing of the market new entrants through aggressive measures like undercutting pricing on new smaller entrants, controlling inputs for production, etc.
But even though the entry for small players could be easy, the entry for a large firm is not that easy. A high technical expertise is must for a new entry. The brand image of the large players who are most like acquire and retain customers also act as a barrier.