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Oligopoly (Other Than Cartel) : Presented To: Randeep Mam
Oligopoly (Other Than Cartel) : Presented To: Randeep Mam
Characteristics
The three most important characteristics of oligopoly are:
(1) An industry dominated by a small number of large firms,
(2) Firms sell either identical or differentiated products, and
(3) The industry has significant barriers to entry.
RULE OF THREE
COLUUSION
In the study of economics and market competition, collusion takes
place within an industry when rival companies cooperate for their
mutual benefit. Collusion most often takes place within the market
form of oligopoly, where the decision of a few firms to collude can
significantly impact the market as a whole. Cartels are a special case
of explicit collusion. Collusion which is not overt, on the other hand, is
known as tacit collusion for e.g. OPEC countries.
GAME THEORY
A technique often used to analyze interdependent behavior among
oligopolistic firms is
game theory. Game theory illustrates how the choices between two
players affect the
outcomes of a "game." this analysis illustrates two firms cooperating
through collusion
are better off than if they compete.
CUT-THROAT COMPETITION :
The existence of idle capacity and the presence of fixed charge often
lead sellers
successively to cut prices to a point where none of the can even
recover his cost and earn a fair return on his investment. Such
situation is characterized by price warfare.
Examples of cut throat competition are:
1) A price war was reported between mills producing synthetic fabrics
within a month of their agreeing to avoid intra-mill price competition.
Due to easy supply position of the polyester fiber in the world markets
a leading manufacturer reduced his price from
$7,180 a ton to $1,050 in December 1977.
2) In November 1986, Hindustan Computers spring rude shocks on its
competitors by having the price of its personal computer, the busy bee
from Rs.40, 000 to a mereRs.20,000.
3) In May 1999, in bid to improve its market share Hewlett Packard
India Ltd. Decided to launch the first Pentium-II tenor of computer by
sub Rs. 50,000 price tag and decided to slash prices of its Briorange of
PCs to below Rs. 40,000 mark.
The most common causes of price wars have been:
• The existence of heavy inventories and resulting competition among
sellers
accompanying the effort to unload their supplies of merchandise.
• The attempt by an aggressive seller to elbow his way into the market
or to expand his operations, with a resulting counteraction by other
sellers striving to protect their share of the market.
• A decline in demand for a generic or individual firm’s product/service,
with
resulting tendency towards the granting of price concessions by sellers
to gin or
protect their sales volume.
• The use of certain merchandise items (cigarettes or books, for
example) as a
leader for attracting patronage, and a resulting retaliatory action by
rival vendors.
• The introduction of a technical innovation in a market accompanied
by greatly
reduced operating costs and resulting pressure on prices.
UNFAIR COMPETITION:
The concept of unfair competition is more ethical than economic and
its precise content is indeterminate. Unfair competition may be defined
to include all of those methods (and none else) which gave one
competitor an advantage or place another at a disadvantage which has
nothing to do with their comparative efficiency in the production and
distribution off good.
Their is a general agreement about the unfairness of the following
practices to take customers away from a competitor by
misrepresenting the quality or the price of one’s goods to interfere
with the sales of a competitor by defaming him, disparaging his
products, harassing his salesmen, obstructing his deliveries, damaging
his goods intimidating his customers, bribing his purchasing agents, or
inducing them to break their contracts with him, or by organizing
boycotts against him, etc. In general, these acts are so designed as to
give a competitor an advantage unrelated to his productive efficiency.
PRICE LEADERSHIP
Price leadership is said to exist when firms fix their prices in a manner
dependent upon the price charged by one of the firms in the industry.
The firm which takes the initiative in announcing its price changes is
called the price leader. All the other firms in the industry which either
match the leader’s price or some variation thereof are termed as price
followers.
TELECOM INDUSTRIES
Overview of telecom industries
The cellular phone industry is one of India's rapidly growing industries.
Since the
industry came into being in the mid 1990s, its average per annum
growth rate has been a phenomenal 85 percent. By the end of 2002,
the Indian cellular phone industry had over 10 million subscribers. The
industry has undergone a number of changes over the years.
The National Telecom Policy 1999 was an important landmark in the
development of the cellular telecom industry in India; the tariff
rationalization and policy regulation introduced in the Policy helped the
industry grow at the pace it did. The years 2001 and 2002 saw an
increase in level of competition in the industry with more operators
being given licenses, and fixed line providers also entering the mobile
market.
Central government raising the FDI limit in the Indian telecom sector
from 49% to 74% increased foreign investments and global telecom
big wigs are due shortly.
Telecom Regulatory Authority of India (TRAI) has estimated that the
country will need about 350,000 telecom towers by 2010, as against
125,000 in 2007. Growth in the telecom sector can be achieved
through focusing on semi urban and rural areas. It is expected that
market size of the Indian telecom sector will be around US$40–US$45
billion by 2010, with 500 m subscribers and 20 m broadband
subscribers.
India added 8.17 million telecom subscribers in December 2007, taking
its total telecom subscriber base to 272.88 million at the end of
December, according to data released on Tuesday by telecom
regulator TRAI.
The overall teledensity stood at 23.89% at the end of December 2007,
against 23.21% in November. The country had seen addition of 8.2-
million subscribers in November and total subscribers stood at 264.77
million at the end of the month. The wireless segment saw an addition
of 8.17 million subscribers in the month of December, against 8.32
million in November. The total wireless subscriber base, including GSM,
CDMA & WL (fixed), stood at 233.63 million at the end of December
2007. The wire line segment saw a fall in total number of subscribers.
The subscriber base declined to 39.25 million in December 2007,
against 39.31 million subscribers in November 2007.
Total broadband subscriber base crossed 3 million to touch 3.13 million
by the end of December 2007, against 2.87 million by the end of
November. Among wireless operators,
Bharti Airtel added 2.2 million subscribers in December, taking its total
base to 55.16 million.
Vodafone Essar added 1.3 million subscribers and its subscriber base
totaled
39.86-million at December-end.
Idea Cellular, with a total subscriber base of 21.05-million at
December-end, added 0.83-million subscribers in the month.
Reliance’s total wireless subscribers, including WLL (F), stood at 40.96-
million after adding 1.57 million subscribers during the month.
Among wireline operators, state-run telco BSNL saw its subscriber base
decline by 0.14-million in December to 31.7 million. MTNL, too, saw its
wireline base dip by about 0.02 million to 3.59-million. Bharti Airtel
added 0.04 million subscribers in December to take its total wireline
subscriber base to 2.17-million
CASE STUDY:
Handset-driven expansion strategies:
Reliance Info com Ltd. (Reliance), India's leading postpaid mobile
services provider,entered the prepaid mobile services segment by
offering subscription schemes that allowed customers to make use of a
digital mobile phone service at an affordable price. For a price of Rs.
3,5003 for a CDMA enabled Motorola handset, a subscriber could get a
free Reliance India Mobile (RIM) prepaid connection and recharge
vouchers worth Rs.3,240. This connection was valid for six months with
a grace period of another six months during which the subscriber could
receive SMS and incoming calls without having to recharge the
account. Similar subscription offers were made on other RIM handsets
also. If a subscriber purchased an LG handset worth Rs. 6,500, he/she
got a free
RIM prepaid recharge voucher worth Rs. 6,480 valid for six months.
The prepaid
subscription offers were seen as a revolutionary step towards making
communication and data services affordable to a wider range of
customers.
Apart from their price, these offers included several value added
services like three way conference call, national roaming, SMS based
data services, STD and ISD facility, call forward and voice message
service at local mobile rates, etc. Also, RIM prepaid was the only
prepaid mobile service in the country that provided data applications
and internet connectivity. Commenting on the innovativeness and
superiority of these services, S P Shukla, President, Wireless Products
and Services, Reliance, said, “RIM Prepaid raises
the bar for innovation, quality of service and value added services in
prepaid segment of mobile telephony market.” Industry observers felt
that by providing high-end services at affordable prices, Reliance was
creating value for its customers...
Currently Reliance Communications (RCOM) recently launching ultra
budget handsets with prices starting at Rs 777, While CDMA players
like RCOM and Tata Teleservices have adopted handset-driven
expansion strategies to drive up subscriber base, this is the first time
that a GSM player is venturing into this space on a pan-India level.
Bharti joins race, to bundle handsets with connections on 22 Jun, 2007.
In a major shift in strategy, India’s largest mobile operator Bharti Airtel
is set to bundle handsets with mobile connections. This means that the
company will provide a handset with a new connection at partly
subsidized rates.
Vodafone Essar, which will spend nearly Rs 250 crore on a high-profile
brand transition from Hutch to Vodafone being unveiled on Thursday,
is poised to launch cheap cellphones in India under the Vodafone
brand. It will also launch co-branded handsets sourced from major
global vendors.
Bharti’s move follows the recent announcement by its main competitor
in the GSM space Vodafone. This said it will launch a series of ultra low-
cost bundled handsets to get a bigger pie of the rural Indian market
and increase its market share. He also dismissed the argument that
Bharti’s foray into the bundled space was driven by its desire to
counter Vodafone’s entry into India with ultra-cheap handsets.
Lifetime plan
Tata Teleservices, which pioneered lifetime pre-paid services in
October 2005, saw a rapid increase in subscriber base at a time when
it was struggling for stability in the fastgrowing sector. Soon, other
operators including Bharti and RCOM too launched such services. In
between Airtel has introduced first lifetime plan with installment plan
to attract the lower and middle class people which is later on followed
by Reliance. Right now Reliance has introduced lifetime plan in 199
which will lead to cost leadership.
Roaming rate
February, TRAI reduced the roaming charges, as per which, the
maximum permissible charge for roaming calls, irrespective of
terminating networks and tariff plans, was set at Rs 1.40 per minute
for outgoing local calls, Rs 2.40 for outgoing national long distance
calls and Rs 1.75 for incoming calls. The telecom regulator had already
removed rentals.
Telecom major Bharti Airtel has reduced roaming tariffs by up to 56
percent and also scrapped the rental for roaming services. May 22:
Starting a price war, Reliance Communications has slashed its roaming
rates by about 70 per cent at the lowest 40 paise a minute on some
select plans, while incoming has been made just Re 1 per minute. The
public-sector telecom operators, MTNL and BSNL, have slashed
national roaming charges to Re 1 for incoming calls and Re 0.40 for
outgoing calls within any visiting network as part of a new post-paid
plan to be launched on June 3.
CONCLUSION:
Oligopolistic competition can be said to be beneficial as it ensures, that
management would keep their organization innovative and efficient
over the long run.
Oligopoly also has the tendency to convert the industry into the
monopolistic firm
because it allows them to retain a degree of competition without
ceding too much control.