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Presented To: Randeep Mam
ROLL. NO. NAME 05 Arjun Bajwa
Identical or differentiated products: Some oligopolistic industries produce identical products. while others produce differentiated products. selling either identical or differentiated products. steel. This generates substantial market control. Sellers are few in number 2.OLIGOPOLY Oligopoly is a market structure characterized by a small number of large firms that dominate the market. Oligopoly dominates the modern economic landscape. Identical product oligopolies tend to process raw materials or intermediate goods that are used as inputs by other industries. Each seller knows his competitors individually in each market. MAIN FEATURES OF OLIGOLPOLY: 1. the size of each sellers output in relation to the total supply is the test. and computers. the extent of market control depending on the number and size of the firms. with significant barriers to entry into the industry. Characteristics The three most important characteristics of oligopoly are: (1) An industry dominated by a small number of large firms. household detergents. a few examples of differentiated oligopolistic industries include automobiles. Infact. accounting for about half of all output produced in the economy. Notable examples are petroleum. Any one of them is of such a size that an increase and decrease in his out put will appreciably affect the market price. and (3) The industry has significant barriers to entry. Small number of large firms: an oligopolistic industry is dominated by a small number of large firms. and aluminum. 3. each of which is relatively large compared to the overall size of the market. (2) Firms sell either identical or differentiated products. Differentiated product oligopolies tend to focus on consumer goods that satisfy the wide variety of consumer wants and needs. .
brand name recognition. ford and chrysler. Each of these make it extremely difficult. OPEC countries. collusion takes place within an industry when rival companies cooperate for their mutual benefit.A but now there are only 3 major players. Collusion most often takes place within the market form of oligopoly. The most common barriers to entry include patents. COLUUSION In the study of economics and market competition.S. and decreasing average cost. viz. government franchises. It helps to find a way to improve or change the strategy if required before companies fall in the ditch. start-up cost. RULE OF THREE In rule of three oligopoly 3 major firms control of 70 to 90 percent of a particular industry. with the remaining companies being relegated to the level of niche players. if not impossible..g. in the 19th century there were more than 200 cars manufacturers in the U. for potential firms to enter an industry. To illustrate this. resource ownership. Barriers to entry: Firms in a oligopolistic industry attain and retain market control through barriers to entry. on the other hand. Cartels are a special case of explicit collusion. where the decision of a few firms to collude can significantly impact the market as a whole. Collusion which is not overt. GAME THEORY . general motors. Identifying the position of a company with respect to competitors. is known as tacit collusion for e. Strengths of the Rule of Three: Rule of thumb.
However. if neither omnicola nor juiceup decide to advertise. then each receives $250 million in profit. In so doing. The end result is that both firms decide to advertise. then juice-up receives $350 million in profit and omnicola receives only $100 in profit. But. if juice-up advertises and omnicola does not. Alternatively. they end up with less profit ($200 million each). as shown in the top right quadrant. regardless of the choice made by juice-up. Game theory indicates that the best choice for omnicola is to advertise. as shown in the lower left quadrant. Game theory illustrates how the choices between two players affect the outcomes of a "game. Omnicola receives a big boost in profit because its advertising attracts customers away from juice-up. then omnicola receives $350 million in profit and juice-up receives only $100 in profit. They receive more because they do not incur any advertising expense. juice-up and omnicola. in the lower right quadrant. Taking an example of an extremely limited . juice-up is wise to advertise. THE KINKED DEMAND CURVE The dependency and uncertainty aspect of the oligopoly leads to the indeterminateness of the demand curve. juice-up receives a big boost in profit because its advertising attracts customers away from omnicola." this analysis illustrates two firms cooperating through collusion are better off than if they compete. and juice-up faces exactly the same choice. Oxford economists.A technique often used to analyze interdependent behavior among oligopolistic firms is game theory. The rigid price in oligopoly leading to Kink in demand curve of an oligopolist was put forward independently by Paul Swerzy. then each receives $200 million in profit. than if they had colluded and jointly decided not to advertise ($250 million each). Soft Drink Advertising The exhibit to the right illustrates the alternative facing two oligopolistic firms. if omnicola and juice-up both decide to advertise. an American economist and Hall and Hitch. as they ponder the prospects of advertising their products. if omnicola advertises but juice-up does not. Regardless of the decision made by omnicola. In the top left quadrant.
OLIGOPOLY AND NON-PRICE COMPETITION : It is viewed with far more equanimity than price cutting and is frequently quite unrestrained. A substantial decrease in demand for an increase in price above OP makes the DT part of the demand curve less elastic. personal selling or product improvements.case of oligopoly i. hence the demand curve is called kinky or kinked demand curve. It is possible the rivals may cut price by a higher margin to capture a larger share of a market. Rigid Price : Price charged by oligopolists is expected to cover full cost and also to bring excess profit if possible. finally oligpolists will not increase their individual sale but may succeed in getting a share of increased total sales dye to reduction in price. In a process a price reduction. The price thus charges remains the same without further changes. A change may come with the collective decision. hence the price become rigid or sticky. The degree or extent of kink depends on the change in elasticity’s on the two segments of the demand curves. Each one’s gain will be a marginal one. Such weak response of demand for a charge in price OP makes TDb part of the demand curve DDb less elastic.e.known as Kinky demand curve. Now we have the demand curve DDb which can be divided into two parts DT and TDb. The upper part that is DT is more elastic and the lower part is less elastic. The basic reason is that retaliation is much more difficult against advertising. . The demand curve at the point of price has a kink. The buyer would purchase from other oligopolist as the rival firm would not increase the price due to the fear of loosing the customers and consequent decline in sales. than against price-cutting. a case of duopoly were there are only two firms. Increase in price: If an oligopolists increase the price above the prevailing price that is OP. The decline on sales of the firm which increases its price depends on the type of product and availability of product in the market. The difference in elasticity’s gives a kink or bends for the demand curve at point . etc. he would loose his customers. Reduction in price: If the oligopolist reduces the price below OP to have more sales of his product the rivals will be quick in reducing their price in order to not to lose the market. The fear of loosing market when price is increased not gaining much when price is reduced makes the oligopolistic firm to stick to the price which they initially charge. we can explain an oligopolists demand curve.
dealer loyalty. Decided to launch the first Pentium-II tenor of computer by sub Rs. 40. 50. The various forms of non-price competition can be stronger and more durable products.40.000. Non price competition may have some benefits to the producer in as much as higher sales induced by non price competition may lead to lower unit costs and production. longer period of guarantee. 2) In November 1986. from the viewpoint of consumers. The most common causes of price wars have been: .Patent and know how barriers.000 price tag and decided to slash prices of its Briorange of PCs to below Rs.20. Moreover. product research and development. 000 to a mereRs. A company’s use of non-price competitive strategy would vary according to the nature of the firm’s product of machine tools would not compete in the same manner as a producer of perfumes. Due to liberalization of licensing. non price competition is getting more and more popular in India. Several TV manufactures are offering hire purchase/installment facilities. 3) In May 1999. Again. home delivery. in bid to improve its market share Hewlett Packard India Ltd.180 a ton to $1. non price competition is boon as they may get better quality goods and services.000 mark. But there is always a risk that changes in product designs may not be acceptable to consumers. and delay in imitation are other important factors. long and usually secretive gestation period. the busy bee from Rs. Hindustan Computers spring rude shocks on its competitors by having the price of its personal computer. Such situation is characterized by price warfare. non-price competition takes the form of changing models in the motorcar industry and heavy advertisement in the soap and detergents industry. promotional effectiveness. 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. However. the sales effects of a particular promotional strategy are far less clear than the effects of price cutting. 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.050 in December 1977. easier credit terms. etc. Due to easy supply position of the polyester fiber in the world markets a leading manufacturer reduced his price from $7. Many companies are discovering the virtue of after sales service. after sales service. better quality packing and appearance.
bribing his purchasing agents. 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. or inducing them to break their contracts with him. Price Leadership arises due to following circumstances: . for example) as a leader for attracting patronage.• The existence of heavy inventories and resulting competition among sellers accompanying the effort to unload their supplies of merchandise. The firm which takes the initiative in announcing its price changes is called the price leader. • 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. etc. • The use of certain merchandise items (cigarettes or books. with a resulting counteraction by other sellers striving to protect their share of the market. obstructing his deliveries. these acts are so designed as to give a competitor an advantage unrelated to his productive efficiency. All the other firms in the industry which either match the leader’s price or some variation thereof are termed as price followers. • The introduction of a technical innovation in a market accompanied by greatly reduced operating costs and resulting pressure on prices. or by organizing boycotts against him. harassing his salesmen. In general. 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. UNFAIR COMPETITION: The concept of unfair competition is more ethical than economic and its precise content is indeterminate. and a resulting retaliatory action by rival vendors. damaging his goods intimidating his customers. • The attempt by an aggressive seller to elbow his way into the market or to expand his operations. 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.
. A Reputation for Sound Pricing Decisions based on Better Information & more Experienced Judgement than What the Other Firms Have: In fact. sound management & long experience of the price leader in the marketing matters. 2. The remaining firms accept the leader because of his ability to coordinate the industry’s growth with that of its members. greater power to enforce follower ship & the best informed about the industry demand and supply conditions& as such best equipped to determine price policy of the entire industry. Substantial Share of the Market : Often.1. although not necessarily. 4. Aggressive Pricing: Often a company may garb leadership through lower prices& thereby snatch large & profitable markets from conservative rivals. Since the industry came into being in the mid 1990s. Initiative : Often the company which first develops a product or area retains the price leadership whether or not it retains the largest market. TELECOM INDUSTRIES Overview of telecom industries The cellular phone industry is one of India's rapidly growing industries. The industry has undergone a number of changes over the years. the largest firm becomes the leader because it is presumed to have the greatest stake in the welfare of the industry. the Indian cellular phone industry had over 10 million subscribers. Lower Costs & Enough Financial Resources : One of the firms has a clear advantage in cost or productive capacity & enough financial reserves to stand the losses of a price war without being seriously crippled. 3. By the end of 2002. 5. price leadership frequently arises as a natural growth within an industry due to the successful profit history. its average per annum growth rate has been a phenomenal 85 percent.
17 million telecom subscribers in December 2007. and fixed line providers also entering the mobile market. as against 125.13 million by the end of December 2007. Telecom Regulatory Authority of India (TRAI) has estimated that the country will need about 350.87 million by the end of November. 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. according to data released on Tuesday by telecom regulator TRAI.88 million at the end of December. The wire line segment saw a fall in total number of subscribers. Among wireline operators. Among wireless operators.14-million in December to 31.2 million subscribers in December.89% at the end of December 2007.2million subscribers in November and total subscribers stood at 264.05-million at December-end. against 8. Growth in the telecom sector can be achieved through focusing on semi urban and rural areas. against 23. MTNL.The National Telecom Policy 1999 was an important landmark in the development of the cellular telecom industry in India.25 million in December 2007.86-million at December-end. The subscriber base declined to 39. CDMA & WL (fixed). taking its total base to 55. The total wireless subscriber base.7 million. state-run telco BSNL saw its subscriber base decline by 0. added 0.3 million subscribers and its subscriber base totaled 39. The wireless segment saw an addition of 8. India added 8. The country had seen addition of 8. stood at 40. It is expected that market size of the Indian telecom sector will be around US$40–US$45 billion by 2010. saw its .17 million subscribers in the month of December.96million after adding 1. the tariff rationalization and policy regulation introduced in the Policy helped the industry grow at the pace it did. with 500 m subscribers and 20 m broadband subscribers.000 in 2007. Idea Cellular. against 39.16 million. against 2.83-million subscribers in the month. Total broadband subscriber base crossed 3 million to touch 3. Reliance’s total wireless subscribers. Bharti Airtel added 2. including WLL (F).31 million subscribers in November 2007. taking its total telecom subscriber base to 272.57 million subscribers during the month. The overall teledensity stood at 23.21% in November.77 million at the end of the month.63 million at the end of December 2007. with a total subscriber base of 21. The years 2001 and 2002 saw an increase in level of competition in the industry with more operators being given licenses.32 million in November. Vodafone Essar added 1. stood at 233. too.000 telecom towers by 2010. including GSM.
S P Shukla. Bharti joins race. 2007. “RIM Prepaid raises the bar for innovation. India's leading postpaid mobile services provider. said. Reliance. (Reliance). Similar subscription offers were made on other RIM handsets also. 6. 3. a subscriber could get a free Reliance India Mobile (RIM) prepaid connection and recharge vouchers worth Rs.” Industry observers felt that by providing high-end services at affordable prices. 6. national roaming. STD and ISD facility. Also. Commenting on the innovativeness and superiority of these services. Bharti Airtel added 0. etc.. If a subscriber purchased an LG handset worth Rs.02 million to 3.wireline base dip by about 0.59-million.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. Wireless Products and Services. Apart from their price.5003 for a CDMA enabled Motorola handset. these offers included several value added services like three way conference call. The prepaid subscription offers were seen as a revolutionary step towards making communication and data services affordable to a wider range of customers. While CDMA players like RCOM and Tata Teleservices have adopted handset-driven expansion strategies to drive up subscriber base. .. he/she got a free RIM prepaid recharge voucher worth Rs. call forward and voice message service at local mobile rates. RIM prepaid was the only prepaid mobile service in the country that provided data applications and internet connectivity. SMS based data services. this is the first time that a GSM player is venturing into this space on a pan-India level. Reliance was creating value for its customers. Currently Reliance Communications (RCOM) recently launching ultra budget handsets with prices starting at Rs 777. President. India’s largest mobile operator Bharti Airtel is set to bundle handsets with mobile connections. quality of service and value added services in prepaid segment of mobile telephony market.04 million subscribers in December to take its total wireline subscriber base to 2. This means that the company will provide a handset with a new connection at partly subsidized rates. In a major shift in strategy.480 valid for six months.17-million CASE STUDY: Handset-driven expansion strategies: Reliance Info com Ltd. to bundle handsets with connections on 22 Jun.500. For a price of Rs.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.3.
99 per minute. ISD rates to US. The telecom regulator had already removed rentals. TRAI reduced the roaming charges. Lifetime plan Tata Teleservices. May 22: Starting a price war. Roaming rate February. irrespective of terminating networks and tariff plans. 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. have slashed national roaming charges to Re 1 for incoming calls and Re 0. Rel-Comm also had cut its rates to the US and Canada to Rs 1. This said it will launch a series of ultra lowcost bundled handsets to get a bigger pie of the rural Indian market and increase its market share.99 per minute on its 'Reliance Global Call Card' of Rs 1. saw a rapid increase in subscriber base at a time when it was struggling for stability in the fastgrowing sector. Reliance Communications has slashed its roaming rates by about 70 per cent at the lowest 40 paise a minute on some select plans. 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.40 per minute for outgoing local calls. MTNL and BSNL. It had recently cut call charges to the Gulf to Rs 6. leading private player Bharti Airtel dropped ISD charges to the US and Canada after which an Airtel mobile user could call at Rs 1.75 for incoming calls.40 for outgoing national long distance calls and Rs 1. . 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. while incoming has been made just Re 1 per minute. other operators including Bharti and RCOM too launched such services. which pioneered lifetime pre-paid services in October 2005. as per which. Telecom major Bharti Airtel has reduced roaming tariffs by up to 56 percent and also scrapped the rental for roaming services.99 per minute with the Airtel STD and ISD Calling Card worth Rs 2. The public-sector telecom operators.245.900. Gulf In May. the maximum permissible charge for roaming calls. Bharti’s move follows the recent announcement by its main competitor in the GSM space Vodafone.40 for outgoing calls within any visiting network as part of a new post-paid plan to be launched on June 3. Rs 2. was set at Rs 1. Soon. It will also launch co-branded handsets sourced from major global vendors. Right now Reliance has introduced lifetime plan in 199 which will lead to cost leadership.Vodafone Essar.
Triggering another price war in the ISD segment.75 per minute. that management would keep their organization innovative and efficient over the long run. CONCLUSION: Oligopolistic competition can be said to be beneficial as it ensures. slightly lower than the rates offered by private firms. Canada and the Gulf to Rs 1. . 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. respectively.75 per minute and Rs 6. state-run telecom major BSNL has reduced call rates to the US.
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