Wednesday, May 6, 2020

Oligopoly Structure in the Australia-Free-Samples for Students

Question: Write a report on Monopolies, Duopolies and Oligopolies in Australia. Answer: Introduction Monopoly, duopoly and oligopolies all are common form of markets exits in an economy. Monopoly is considered as the broadest games among these three forms. There are long policy debate regarding the existence of perfect competition and absence of it in the pure form. Presence of innumerable number of buyers and seller, selling identical products is a myth and so is the concept of perfect competition. Monopoly structure is found to exist when single sellers sells some unique product. In Australia market concentration is observed in supermarkets, in the financial sector concentration is among the four major banks and one monopolist Telstra in telecommunication industry. Summary of the Story The large players in the market easily attract investments and investors are always eager to in these sectors because of huge possible returns. Often regulators and government support their expansion to boost economic growth. However, now the opportunities for big business are fading because of a change in focus of the Australian Competition and Consumer Commission (ACCC) that now become more aware of about the behavior of large player toward other suppliers and consumers. This weakens some oligopoly structure in the Australia. On the other hand, a possible break down of quasi monopoly structure of Telstra in telecommunication is realized. Once entry barriers controlled by National Broadband Network (NBN) are relaxed, the industry will have four other big players as suggested from the market research by Morgan Stanley (smh.com.au 2017). The removal of monopoly structure will attract new service providers to the broadband industry reducing prospect returns of Telstra in the business. The statistics revealed by Stanley shows new service providers entering in the business need 100,000 subscribers to reach to the break-even point. In order to earn satisfactory level of profit needed subscribers are 200,000 (abc.net.au 2017). This is quite large number for a new entrant to achieve. In the telecom industry it s believed that four player Telstra, TPG, Optus and Vocus have considerable competitive advantages. Since 2000, Consolidation has already begun in the industry. A major share of profit (80%) was previously enjoyed by Telstra and only 20% was left for three others and existing small providers. The ratio now becomes 60% for Telstra (Barry 2017). Vodafone Hutchison though is a large player in the mobile industry; it does not exist in the broadband service. Driving factor for decline in the number of competitors is the huge rapid expansion of TPG and Vocus acquiring a larger share in the industry. In the telecom industry a series of takeover is experienced with M2, iprimus, Dodo, Engin and some other joined with Vocus. With this, the market share of Vocus increased to 8 percent and that for TPG is 27 percent (Nabin et al. 2017). Economic theories and concept Monopoly in Australia Any market dominated by a single seller is considered as a monopoly market. In such a market structure sellers have exclusive control over price and quantity. The monopolist can set price such a high level that he can grab the entire consumer surplus alone. Some distinct features of monopoly market include the product sold in the monopoly market generally lacks any substitutes. There are barriers preventing any new entry in the market. As the product does not have any substitutes neither allows entry of few firms, the monopolists do not have any close competitors (Tyers 2015). Hence, the monopolist is the price maker in the maker in the market. There are some markets where one seller enjoy some natural advantages such strategic advantage, control over some mineral resources and others. Figure 1: Monopoly market and economic profit (Source: As created by Author) In a market, when share of any one firm is too much the market is also considered as an example of monopoly market. Telecommunication industry in Australia largely dominated b Telstra. The industry also prevents entry of some potential competitors such as Optus, Vocus and TPG (Hazledine 2017). The structure is now changing with the potentiality of becoming a oligopoly and duopoly. Oligopoly Oligopoly is concentrated form of market. However, the concentration is less than the monopoly. There are few large players having a significantly large share. Strategic interdependence is a feature of oligopolistic market share. The examples of oligopoly markets in Australia are petrol retailers, in the finance industry banks are well known examples of maintaining an oligopoly market structure. In the Supermarkets, there are also oligopoly players (Baumol and Blinder 2015). Duopoly In the duopoly market, there is competition between two large players. Duopoly is a reduced form of oligopoly market. Here, the two sellers sell a differentiated product to capture a greater market share. In the grocery market, Woolworths and Coles are two duopoly players (Fine 2016). In Australian airline business, duopoly structure is also found. There are some industries in Australia there are possibility of emerging a duopoly structure if barriers is relaxed. Recommendation Any form of imperfectly competitive markets generally not desirable. These forms of markets are unfair for consumers and they are often considered inefficient. In Australia, the threat of different forms of imperfect competition is growing rapidly. Regulation should be relaxed in the industries. New entrants should be given permission to enter in the market. In the telecommunication industry for example the dominance of Telstra should be reduced. It is difficult to make the industry fully competitive. However, some form of competition can be welcomed with allowing entry of potential competitors. In fact, oligopoly structure is better than the dominance of a single seller. NBN should allow TPG, Optus and Vocus to do business independently in the industry. Conclusion The paper evaluates a news article on Australias monopoly, duopoly and oligopoly market structure. Monopoly prevails in public utility services like water supply, electricity and infrastructure. These are natural form of monopoly. However, the telecom industry in Australia maintains a monopoly structure with dominance of Telstra. Recently ACCC has changed its focus and aims at reducing concentration. This troubles the big business that earlier receives support in maintaining their monopoly power. The paper considers the case of telecom industry. The same is the case for grocery retailers in Australian supermarkets. References ABC News. (2017).NBN likely to entrench broadband oligopoly: analysts. [online] Available at: https://www.abc.net.au/news/2016-04-08/nbn-to-entrench-broadband-oligopoly/7310228 [Accessed 24 Aug. 2017]. Barry, T.S., 2017. Regulating network charges in an upstream monopoly market that supplies a downstream retail duopoly: A potential framework for NBN pricing. Baumol, W.J. and Blinder, A.S., 2015.Microeconomics: Principles and policy. Cengage Learning. Fine, B., 2016. Microeconomics.University of Chicago Press Economics Books. Hazledine, T., 2017. Mixed pricing in monopoly and oligopoly: theory and implications for merger analysis.New Zealand Economic Papers,51(2), pp.122-135. Irvine, J. (2017).Get out of monopoly free cards can't be left to the roll of the dice. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/federal-politics/political-opinion/get-out-of-monopoly-free-cards-cant-be-left-to-the-roll-of-the-dice-20101026-172ax.html [Accessed 24 Aug. 2017]. Nabin, M.H., Nguyen, X., Sgro, P.M. and Chao, C.C., 2014. Strategic quality competition, mixed oligopoly and privatization.International Review of Economics Finance,34, pp.142-150. Tyers, R., 2015. Service Oligopolies and Australia's Economy?Wide Performance.Australian Economic Review,48(4), pp.333-356.

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