StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Economics: Structure of the Mobile Industry and the Key Assumptions under Oligopoly - Assignment Example

Cite this document
Summary
The author of the paper examines the overall structure of the mobile industry(manufacturers, network operators, and dealers). The author also describes three types of elasticity i.e. price, income as well as cross elasticity, and identifies the key assumptions under oligopoly. …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER98.3% of users find it useful
Economics: Structure of the Mobile Industry and the Key Assumptions under Oligopoly
Read Text Preview

Extract of sample "Economics: Structure of the Mobile Industry and the Key Assumptions under Oligopoly"

Task Mobile Phones are now considered as the essential items for our daily lives and the mushroom growth of the new mobile sets and introduction ofsmartphones has made it possible for people to perform tasks which were previously been done by computers. Such innovation and speed also required improvements from the mobile phone networks also. The overall structure of the industry suggest that there are two type of producers i.e. the one who produce and manufacture mobile phones and other ones who provide data services to communicate and perform other tasks through these mobile phones. The overall composition of mobile phone industry as a whole therefore comprised of different components and the major businesses involved in the sector are: Manufacturers Manufacturers are essentially limited to the manufacturing of mobile handsets and accessories and supply them to the mobile phone network service providers. Most of the major manufacturers of mobile phone sets are however, foreign and UK imports mobile phones. Major manufactures of mobile phone handsets include Nokia, Samsung, Apple, Sony Ericson are all foreign firms providing mobile phone handsets and other accessories to the service providers.1 Network Operators Network operators offer airtime and data services to the end users as well as other tied services. They also offer services to indirect services providers as well as the virtual network service providers. They also sell packages to the customers as well as to the dealers to provide pay as you go as well as other bundled services to end users. Dealers Dealers actually operate through their retail outlets and offer mobile phone handsets as well as services obtained from the network operators. Though there are large numbers of smaller and independent dealers however, market seems to be dominated by the few very large dealers such as phone4U and other dealers. The above components of the market work in tandem with each other however, the focus of this paper will be on the mobile network operators. Mobile Networks The growth of mobile phone networks in UK started during 1985 when government started to de-regulate the market. Since then there has been mushroom growth of the mobile networks in the country. Over the period of time, new services have been added thus increasing the overall depth and breadth of the market. (Doyle and Smith, 1999) Mobile network operators are telecommunication firms which buy the license from the government to provide data and network services to the end users of mobile phones. Some estimates suggest that there are more than 80 million users of mobile phone data services across the country. Such growth in the market therefore suggests that UK is one of the growing markets for the mobile phone networks. What is also critical to understand that the overall number of service providers have remained limited despite such growth in the market. Initially very few operators were allowed to operate however the overall inclusion rate has increased in the recent past. Firms like Orange, O2, and Vodafone are now considered as industry pioneers because they were the early players in the market having developed the market and gained the first mover advantages. Market Structure Considering the overall information into account, the market structure of mobile phone networks in UK is an oligopoly. Oligopoly is a market structure where the overall market is dominated by small number of sellers. As evident from the data and other information, the overall number of users in the market is over 80 million however; market is served by less than 10 sellers. The major players in the market are however, still limited with O2 having market share of 27% whereas as Orange, Vodafone and T-Mobile has a combined market share of 65% thus making these four firms controlling more than 90% of the market share.2 One of the key aspects of oligopoly market share is based upon the assumption that the market power of the four large firms can be obtained by using concentration ratio. Concentration ratio indicates the market power of four largest firms in the industry and the higher this ratio is, more power lies with few players in the market.( Pindyck, and Rubinfeld, 2001) As discussed above that the top four firms in the industry are controlling more than 90% of the market share suggests that the mobile phone network industry is dominated by four firms. It is critical to note that since the overall number of players in the market is limited under oligopoly therefore firms are conscious about the moves of other firms and strategic planning in this market structure requires that the moves of other players in the market need to be closely monitored. It is critical to note that in oligopoly the barriers to entry and exit are high and oligopolists are often able to set the prices rather than work as the price takers. Firms can often collude with each other in order to stabilize the market whereas competition can also become some time fiery with very low prices and high production. For a firm to be successful in this market structure, it is critical to understand that the firms should take the first mover advantage. It has been argued that with the growth of smartphones, the mobile network markets in UK and other parts of the world are converging with operators not only offering basic services but other services too. The range of services such as internet, mobile TV and high-end services therefore suggest the convergence of the market. A firm working in this industry therefore need to take into account what other players are doing and should adjust its strategies accordingly. The overall fluid nature of the technology market therefore suggest that the firms should continue to make strategic adjustments or gain first mover advantages by entering into those segments of the market which are not well served. Further, there is a lot of non-price competition such as offering free handsets, data services as well as MMS and other free bundles therefore firms need to continue to evolve its overall product offering to successfully compete in the market. Task-2 One of the key assumptions under oligopoly is that the firms often tend to react towards the actions of other firms. The overall demand therefore is considered as dual in nature as the firms not only have to focus on the demand from the consumers but also depend upon the likely reactions of other firms in the market also. One of the key assumptions therefore is that the firms tend to manage their market shares and as such increase in prices is not matched. Most of the firms operating in the industry therefore focus upon price falls rather than price increase. (Samuelson & Marks, 2003) The above curve shows a kinked demand curve for a firm working in oligopoly market indicating that if a firm increases the prices and other players in the market don’t follow the move, there will be larger substitution effect. Due to this substitution effect however, there will be a shift towards other firms in the market. This indicates that the demand in oligopoly is price elastic in nature and an increase in prices may witness a reduction in the market power for the firms. Price reduction if followed by the same actions by other firms in the market however may see very little change in the market share. It is assumed that the price reduction if followed by other firms in the market may make demand as price inelastic and there will be no changes in the market share for the firm. The kinked demand curve therefore suggests that when a firm achieves a profit maximization combination of quantity and price, there will be little incentive for firms to alter their prices. (Perloff,2008) It is critical to note that the supply in the market is largely driven by the demand from end users. The increasingly complexity and range of expansion in the market suggest that the consumers demand more data, higher speed levels, better coverage as well as affordable prices. These factors seem to further heat up the non-price competition within the market with major firms focusing on rich contents. 3It is suggested that the users have made their PCs as the benchmark and expect same services to be delivered to their mobile phones in efficiently and less expensive manner. This fluid nature of the market therefore indicates that the firms continue to focus on meeting these demands through the constant supply of new services at relatively same prices. The above phenomenon therefore can be explained through the kinked demand curve where achievement of profit maximization price and quantity combination will not result into further distortion of the prices. It is also important to note that the demand is largely also influenced by the way products and services are marketed to the consumers. Non-pricing variables such as better quality, marketing and advertising play large role in determining the overall market demand for the services. Quality plays important role because consumers expect to receive faster and uninterrupted services from the mobile phone networks. The emergence of smartphones has opened the demand for other services such as high speed internet access, small software applications as well as navigation services. Such expansion of services however, is not coming through price increase and the overall prices are considered as relatively stable. The convergence of the market therefore may further blur the distinction between the players and other markets such as news, tv as well as films may also converge with mobile phone networks to offer their services on the small mobile phone sets.4 The above discussion therefore indicates that the overall traditional boundaries between the firms working in same industry and other industries may further blur and the demand for services may depend upon the ability of service providers to offer bundled services. Task-3 Elasticity measures the degree to which the supply and demand curve responds to the changes in the prices. It is critical to note that the elasticity may vary according to the products such as necessities and luxuries. Elasticity = (% change in quantity / % change in price) Elasticity can be both in the demand as well as the supply of the products and as such the changes depend upon the manner in which both the variables react to the changes in the prices. There are three types of elasticity i.e. price, income as well as cross elasticity. Price elasticity measures the changes in quantity demanded due to change in prices, whereas income elasticity measures the changes in demand due to changes in consumer income. Cross elasticity however, measures the changes in quantity demanded of one good for changes in the price of another good. As discussed above that the market is an oligopoly in nature therefore firms often enter into collusion for price fixing as well as price leadership. The theory of oligopoly suggests that once the firms achieve profit maximization price and quantity levels, it is less likely that the firms will change the prices. The overall strategic moves of the firm therefore depend upon how other firms react to the changes. If a firm increases the prices and other firms will not follow the move, there is a higher probability that the demand will be price elastic in nature. (Ayers, 2003) This therefore means that there may be switching of the customers to other network services providers. It is because of this nature of the pricing that the firms in the industry offer contracts in which prices are locked for the period of the contract. Fixing prices through contracts ranging from 12 month to 24 month contracts also ensures that other features such as internet data are fixed too therefore firms effectively reduce the impact of subsequent price changes on the overall revenue of the firm. Supply is elastic too as the firms respond to the changes in the demand as this is potentially a service oriented industry with relatively little constraints on the level of output. Firms can increase the number of subscribers through better managing the demand from the consumers for different services. References Ayers, C. (2003) Microeconomics.. New York: Pearson. Doyle, C. and C. Smith, J. (1999) MARKET STRUCTURE IN MOBILE TELECOMS: QUALIFIED INDIRECT ACCESS AND THE RECEIVER PAYS PRINCIPLE. Regulation Initiative Discussion Paper Series, Iss. 21. Perloff, . (2008) Microeconomics Theory & Applications with Calculus. . New York: Pearson. Pindyck, R. and Rubinfeld, D. (2001) Microeconomics. 5th Ed. New York: Prentice-Hall. Samuelson, W.; Marks, S (2003) Managerial Economics. New York: Wiley. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Economics: Structure of the Mobile Industry and the Key Assumptions Assignment - 3, n.d.)
Economics: Structure of the Mobile Industry and the Key Assumptions Assignment - 3. Retrieved from https://studentshare.org/macro-microeconomics/1589593-economics
(Economics: Structure of the Mobile Industry and the Key Assumptions Assignment - 3)
Economics: Structure of the Mobile Industry and the Key Assumptions Assignment - 3. https://studentshare.org/macro-microeconomics/1589593-economics.
“Economics: Structure of the Mobile Industry and the Key Assumptions Assignment - 3”, n.d. https://studentshare.org/macro-microeconomics/1589593-economics.
  • Cited: 0 times

CHECK THESE SAMPLES OF Economics: Structure of the Mobile Industry and the Key Assumptions under Oligopoly

Comparison of market structures of US retail and housing industry

The market structure of the US construction and engineering industry is determined by five key drivers, which are supplier power, buying power, degree of rivalry, new entrants and number of substitutes available.... Cigarettes segment is the dominant segment therefore market structure of this industry depends on its market size, market growth, competition and number of companies operating.... These industries possess different market structures; retail industry lies in oligopoly whereas construction industry carries monopolistic competition structure....
16 Pages (4000 words) Term Paper

Evaluation and Opinion on Oligopoly

Because of this interdependence, managerial decision-making is much more complex under oligopoly than under other forms of market structure.... uge capital investments and supplying inputs are usually required to enter an oligopolistic industry and this acts as an important natural barrier to entry.... The paper “Evaluation and Opinion on oligopoly” focuses on a concentrated market dominated by a few large suppliers.... hellip; The author of the paper states that oligopoly is the most prevalent form of market organization in the manufacturing sector of industrial nations, including the United States....
3 Pages (750 words) Assignment

Economics Regarding Oligopoly Markets

In the continuum between monopoly and perfect competition oligopoly has raised its dreadful form to the detriment of the consumer.... The beauty of this entire operation is that both consumers as well as the supply chain consider the oligopoly as their benefactor and willingly subscribe to their ideology.... But the fact is that an oligopoly is exploitative although it appears to be benign; and when it hurts it is often too late to help the stakeholders....
9 Pages (2250 words) Essay

Comparison of Perfect Competition and Monopoly

Economics classify markets, according to the industry within which the firms work and how they affect the overall economy of the country.... However, on the other hand, industry is the combination of various economic variables, which determine the overall nature, characteristics as well as extent of the competition within that particular industry.... Market structure is considered as one of the central themes of economics.... Perfect competition is a market structure in which there are large numbers of fully informed buyers and sellers of a homogenous product with no obstacles to entry or exit of firm in the long run....
8 Pages (2000 words) Essay

Monopolistic Competition and Oligopoly market structures

In the paper “Monopolistic Competition and oligopoly market structures” the author contrasts and compares the two types of market structures - Oligopolistic and Monopolistic competition.... hellip; The author states that some industries can posses the characteristics of both oligopoly and monopolistic firm.... With decrease in the level of competition the firms tend to behave more likely to that of oligopoly and less likely to that of monopolistic competition....
4 Pages (1000 words) Essay

Structure, Conduct and Performance Model in the Mobile Phone Industry

The emphasis is on the price structure of the firm whether the price is set individually or in association with other firms in the industry.... The author identifies the key features of the structure, conduct, and performance in the mobile phone industry, and identifies to what extent the S-C-P paradigm provides a valid explanation of the conduct and performance in the industry, and examines ways in which new and existing firms attempt.... As such structure means the conditions under which the firms can perform in a specific market....
10 Pages (2500 words) Assignment

Monopoly and Oligopoly

The same product or services are closely… Here are some firms under oligopoly market structure; fast-food companies such as McDonald, Wendy's, and Burger King.... also falls under oligopoly market structure.... Here are some firms under oligopoly market structure; fast-food companies such as McDonald, Wendy's, and Burger King.... also falls under oligopoly market structure.... Sprint, AT&T, T-Mobile, and Verizon are firms under oligopoly market Structure (Tucker, 2010)....
2 Pages (500 words) Essay

Imperfect Markets - Oligopoly and Monopoly

This paper " Imperfect Markets - oligopoly and Monopoly" focuses on the fact that oligopoly is a market structure where the market consists of a few firms.... nbsp; In the oligopoly markets, there is a strong barrier for entry into the market.... However, in the case of an oligopoly market, the market has a few companies.... In the assumptions that are mentioned above, it is clear how the market functions.... There are a few key features that are related to the monopoly markets....
9 Pages (2250 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us