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Microeconomics in the context of South African Mobile Telecom
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Table of Contents
Executive Summary:...................................................................................................................................... 6
Introduction: ................................................................................................................................................. 7
Methodology:................................................................................................................................................ 7
1.1 Market Structure of South African Mobile Telecommunication Industry: ............................................. 7
Features of market structure: ................................................................................................................... 7
Monopoly: ................................................................................................................................................. 8
Oligopoly: .................................................................................................................................................. 8
Assumptions to Oligopoly and South African Telecom In Light Of Oligopoly: ...................................... 8
Perfect competition: ................................................................................................................................. 9
Assumptions to Perfect Competition:................................................................................................... 9
1.2 Barriers to entry exit in this industry: ................................................................................................... 10
Some barriers to entry exit into or from market: ................................................................................... 10
Economies of Scale: ............................................................................................................................ 10
Common/ Geographical Barriers: ....................................................................................................... 10
Brand Loyalty through advertising: ..................................................................................................... 11
Breaking point Pricing: ........................................................................................................................ 11
Predatory Pricing:................................................................................................................................ 11
Vertical Integration: ............................................................................................................................ 11
Legitimate Patents: ............................................................................................................................. 11
Learning and expertise:....................................................................................................................... 11
Being the first mover in the industry: ................................................................................................. 11
System effects: .................................................................................................................................... 11
2.1 Actions to combat potential abuse of market power: .......................................................................... 12
2.2 Kinked demand curve in the context of telecom sectors of South Africa: ........................................... 12
The kinked demand curve model of oligopoly in the context of South African telecom sector: ........... 13
The importance of non-price competition under oligopoly in the context of kinked demand curve: ... 14
Price leadership tacit collusion: ........................................................................................................... 15
Explicit collusion under oligopoly: .......................................................................................................... 15
Collusion in a market or industry is easier to achieve when: ................................................................. 16
Conceivable break-downs of cartels: ...................................................................................................... 16
3.1 Monopolist in South African telecom before 2003: ............................................................................. 16
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Executive Summary:
The economy of a country is related with the production and consumption of goods and services
to the consumers and through this way maintain the balance of consumers demand and supply.
The outputs produce in the firm goes to the market place to go to the final consumers. Depending
on the structures of these markets, the price quality, availability, switching cost may be differed.
Basically the market structures of a country define the different characteristics of a market.
These characteristics can be the organizational characteristics or the competitive characteristics.
The South African mobile telecom sectors sometime are in the monopoly or sometime in the
oligopoly and finally in the perfectly competitive situation. The monopoly market has only one
seller such as MTN but many buyers. The oligopoly market has two sellers such as MTN and
Vodacom who dominate the market together and set the price by discussing between themselves.
The perfectly completive market ensures different sellers and ensures the competitive price
among the sellers. When the Virgin enters into the telecom sectors, the market becomes
competitive. The perfectly competitive market ensures the proper allocation of resources and
information to every party of the economy. It also ensures the profit maximization in the context
of normal profit, super normal profit and economic loss.
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Introduction:
Economy of a country ensures the proper allocation of resources to the every one of the country.
The different products made by the different firms in the economy are supplied to the different
markets. The price nature of competition depends on the structure of the market of a nation. The
South African mobile telecom sectors experienced different market structure at different time.
These market structure provides different advantages or disadvantages to the both different firm
and the consumers. To enter into an established market sector is so tough. But dedication and
hard work can ensure the entrance of the marketplace such as the Virgin telecom in South
African telecom sectors. After their seven years war Virgin enters into the Telecom sectors of
South Africa.
Methodology:
To prepare this essay a huge study is made on the microeconomics. And specially certain part
such as kinked demand curve, profit maximization, market structures, different profit etc. the
data used here are secondary collects from different websites, journals, books and periodicals.
That means all the data are presented here are secondary. Several graphs on relevant ideas are
given on this essay. Then all the collected data are documented using Microsoft word.
Monopoly:
It is a market structure described by a single seller, offering a remarkable item in the market.
A market structure described by a single seller, offering a remarkable item in the market is called
imposing business model market. In a restraining infrastructure market, the seller confronts no
rival, as he is the sole seller of merchandise with no nearby substitute.
In an imposing business model market, elements like government permit, responsibility for,
copyright and patent and high beginning expense make an element a single seller of
merchandise. All these elements confine the passage of different sellers in t
Oligopoly:
Oligopoly could be characterized as a market structure with a little number of extensive players
likewise called as Oligopolists. These vast players have a noteworthy offer of the aggregate
market size. Colossal rivalry is focused inside these contenders
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Perfect competition:
Perfect competition, as the name itself recommends, is the most competitive type of monetary
structure. Unadulterated Perfect competition scarcely exists. 1. As indicated by an article [oxford
journal] perfect competition implies a state of undertakings in which the interest for the yield of
an individual dealer is perfectly versatile.
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A firm producing at Q1 has lower average costs. If a new firm enters and generates Q2,the
average cost become uncompetitive.
the event that you don't have entry to a decent area for a theater in say Covent Garden, it creates
an obligation to entry.
Predatory Pricing:
This happens when an incumbent firm reacts to another firm entering the market by starting a
price war and trying to push the adversary firm out of business. It is unlawful so it might be hard
to execute in practice.
Vertical Integration:
Vertical integration happens when a firm has control over the supply and appropriation of the
great. Case in point, oil organizations can keep the price of petrol high to debilitate new petrol
retailers.
Legitimate Patents:
A legitimate patent can give an unadulterated syndication in light of the fact that other firms can't
utilize its patent (e.g. a pharmaceutical organization can get a medication patent for 7 years,
meaning nobody else can offer that specific medication.
System effects:
In numerous industries, the achievement of the business obliges a firm to have a discriminating
mass of clients. This is especially the case with online networking. Individuals don't pick
fundamentally the best specialized online networking yet the ones their companions
utilization.
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Government provides more incentives to enter new firm into mobile telecom sectors
Enforce flexible laws and regulations in the context of mobile telecom sector
Discourage the practice of monopoly or oligopoly
Reduce the infrastructure cost of telecom industry
Encourage firm to practice perfectly competitive market
Reduce the tax on airtime and all others services on mobile telecom
Take proper actions to reduce the syndications
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In the event that a business raises cost and others leave their prices steady, then we can expect
very much a vast substitution impact far from this firm making demand generally value versatile.
The business would then lose market impart and hope to see a fall in its total revenue.
In the event that a business decreases cost however different firms go with the same pattern, the
relative value change is much more modest and demand would be inelastic in admiration of the
value change. Cutting prices when demand is inelastic additionally prompts a fall altogether
revenue with next to zero impact on market offer.
The kinked demand curve model hence makes a forecast that a business may achieve a stable
profit-maximizing equilibrium at value P1 and yield Q1 and have minimal impetus to modify
prices.
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The kinked demand curve model predicts times of relative cost security under an oligopoly with
organizations concentrating on non-cost rivalry as a method for fortifying their market position
and expanding their super ordinary profits.
Fleeting value wars between adversary firms can even now happen under the kinked demand
curve model. Amid a value war, firms in the market are trying to grab a transient playing point
and
win
over
some
additional
market
offer.
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Types of Monopoly:
Perfect Monopoly:
It is additionally called as supreme imposing business model. For this situation, there is just a
solitary merchant of item having no nearby substitute; not by any means remote one. There is
completely zero level of rivalry. Such imposing business model is basically exceptionally
uncommon.
Imperfect Monopoly:
It is likewise called as relative syndication or straightforward or restricted restraining
infrastructure. It alludes to a solitary dealer market having no nearby substitute. It implies in this
market, an item may have a remote substitute. In this way, there is alarm of rivalry to some
degree e.g. Portable (Cellphone) telecom industry (e.g. Virgin) is having rivalry from altered
landline telephone administration industry (e.g. BSNL).
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Private Monopoly:
At the point when creation is possessed, controlled and oversaw by the individual, or private
body or private association, it is called private imposing business model. e.g. Tata, Reliance,
Bajaj, and so forth aggregates in India. Such sort of imposing business model is benefit arranged.
Public Monopoly:
At the point when generation is claimed, controlled and oversaw by government, it is called open
imposing business model. It is welfare and administration turned. In this way, it is additionally
called as 'Welfare Monopoly' e.g. Tracks, Defense, and so on.
Straightforward Monopoly:
Straightforward imposing business model firm charges an uniform value or single cost to all the
clients. He works in a solitary market.
Separating Monopoly:
Such a syndication firm charges diverse cost to distinctive clients for the same item. It wins in
more than one market.
Legitimate Monopoly:
At the point when imposing business model exists because of trademarks, licenses, duplicate
rights, statutory regulation of government and so on., it is called legitimate restraining
infrastructure. Music industry is a case of legitimate imposing business model.
Natural Monopoly:
It develops as an aftereffect of common points of interest like great area, copious mineral assets,
and so on e.g. Bay nations are having imposing business model in unrefined petroleum
investigation.
Joint Monopoly:
Various business firms gain restraining infrastructure position through amalgamation, cartels,
syndicates, and so forth it gets to be joint syndication
Engineering Monopoly:
It develops as an aftereffect of economies of extensive scale creation, utilization of capital
products, new generation techniques, and so forth e.g. Designing merchandise industry, auto
industry, programming industry, and so forth.
Monopoly, Characteristics:
The main characteristics of monopoly market structure are given below.
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Single Supplier:
The quintessence of an imposing business model is a business controlled by a solitary merchant.
The single vender, obviously, is an immediate complexity to flawless rivalry, which has
countless. The most vital part of being a solitary dealer is that the syndication merchant IS the
business sector. The business sector demand for a decent IS the demand for the yield delivered
by the restraining infrastructure.
Unique Product:
To be the main dealer of an item, nonetheless, an imposing business model must have an
extraordinary item.
Specific Information:
Restraining infrastructure is regularly portrayed by control of data or generation innovation not
accessible to others. This particular data frequently comes as lawfully settled licenses,
copyrights, or trademarks. While these make lawful obstructions to passage they additionally
show that data is not splendidly imparted by all.
Advantages:
Steadiness of prices:
In a monopoly market the prices are the vast majority of the times stable. This happens on the
grounds that there is stand out firm included in the market that sets the prices if and when it feels
like
Wellspring of income for the legislature:
The legislature gets income in manifestation of tariff from monopoly firms.
Monstrous profits:
Because of the unlucky deficiency of contenders which prompts high number of offers monopoly
firms have a tendency to get super profits from their operations.
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Disadvantages:
Exploitation of consumers:
A monopoly market is best known for consumer exploitation. There are in reality no contending
products and accordingly the consumer gets a crude arrangement as far as amount, quality and
estimating.
Dissatisfied consumers:
Consumers get a crude arrangement from a monopoly market in light of the fact that quality will
be traded off. Therefore it is not a wonder to see extremely disappointed consumers who often
grumble about the company's products
Higher prices:
No competition in the market implies unlucky deficiency of such things as value wars that may
have profited the consumer and as an aftereffect of this monopoly firms have a tendency to
charge higher prices on goods and services henceforth inconveniencing the purchaser.
Price discrimination:
Monopoly firms are additionally once in a while known for drilling value discrimination where
they charge different prices on the same product for different consumers.
Inferior goods and services:
Competition is insignificant or completely truant and thusly the monopoly firm may
energetically deliver substandard goods and services on the grounds that after all they know the
goods won't neglect to offer.
Short run price and output for the competitive industry and firm:
In the short run the equilibrium market price is controlled by the collaboration between market
demand and market supply. In the chart demonstrated above, price P1 is the market-clearing
price and this price is then taken by each of the organizations. Since the market price is steady
for every unit sold, the AR curve likewise turns into the Marginal Revenue curve (MR). A firm
amplifies profits when minimal income = peripheral cost. In the outline over, the profitmaximizing output is Q1. The firm offers Q1 at price P1. The region shaded is the financial (
super normal profit) made in the short run in light of the fact that the decision market price P1 is
more noteworthy than average total cost.
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Not all organizations make super normal profits in the short run. Their profits rely on upon the
position of their short run cost curves. A few firms may be encountering sub-normal profits in
light of the fact that their average total costs surpass the current market price. Different firms
may be making normal profits where total income equivalents total cost (i.e. they are at the earn
back the original investment output). In the chart beneath, the firm demonstrated has high short
run costs such that the decision market price is underneath the ATC curve. At the profit
maximizing level of product, the firm is making a financial misfortune (or sub-normal profits)
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A perfectly competitive firm guided by the quest for profit is slanted to create the amount of
yield that likens marginal revenue and marginal in the short run, regardless of the fact that it is
acquiring a monetary loss. The way to this loss minimization creation choice is a correlation of
the loss brought about from creating with the loss acquired from not delivering. On the off
chance that price surpasses average variable cost, then the firm brings about a more diminutive
loss by delivering than by not creating.
Alternative production
Cost and price
Consequence
P > ATC
Profit Maximization
ATC >
AVC
P < AVC
>
Loss Minimization
Shutdown
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Why?
Assume MR > MC. In the event that I deliver 1 more unit, my revenues increment by more than
my costs. Hence, if MR > MC, creating increasingly will build my profit. On the off chance that
I can expand my profit by changing the extent to which I create, then when creating where MR >
MC can't be profit-amplifying.
Assume MR < MC. In the event that I deliver 1 less unit, my revenues diminish by short of what
my costs diminish. Consequently, if MR < MC, I can build profit by diminishing yield. On the
off chance that I can expand profit when MR < MC, then picking q such that MR < MC cannot
be profit-maximized.
In this way, to boost maximized, I must pick an amount q such that MR = MC.
MR = MC is a harmony as in it is the main spot where there is no motivation to change the
creation level.
This control, the profit maximization guideline, is simply an application of the marginal rule
(MB = MC).
Why? This MB of delivering an additional unit is the additional revenue you get. MR is the MB.
So the 2 announcements are proportionate. The marginal rule is more general, and the profit
maximization standard is particular to the firm creation choice.
Normal profit:
The normal profit under the profit maximization in the context of perfectly completive market
occurs when the profit of an organization equals to the average cost. The condition of normal
profit can be given in the following formula.
Profit (P) = Average Cost (AC)
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In the long period, economic profit can't be managed. The landing of new firms or development
of existing firms (if comes back to scale are steady) in the business sector causes the (flat)
demand curve of every individual firm to movement descending, cutting down in the meantime
the price, the normal revenue and marginal revenue curve. The last result is that, over the long
haul, the firm will make just ordinary profit (zero economic profit).
MC
AC
C0
P0
Y0
MR
AR
Here P0 is the market setting price. At OP0 price total output OY0. So total revenue = OP0 *OY0=
OP0C0 OY0
Average cost of producing per unit output is OP0. So total cost = OP0 * OY0 = OP0C0 OY0
Profit (R) = Total revenue Total Cost
= OP0C0 OY0 - OP0C0 OY0
This is the normal profit under the profit maximization in the context of perfectly competitive
market situation.
Economic Profit:
The Economic profit under the profit maximization in the context of perfectly completive market
occurs when the profit of an organization greater than the average cost. The condition of normal
profit can be given in the following formula.
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MC
AC
C0
P0
P0
C0
Figure: Economic
profit
Y0
MR
AR
Here OP0 is the market setting price and OP is the average cost of producing per unit output.
Total profit= Total revenue Total cost
P0P0C0C0 = OP0C0Y0 OP0C0Y0
In this figure P0> AC so firm or industry make economic profit.
Economic loss:
The Economic loss under the profit maximization in the context of perfectly completive market
occurs when the profit of an organization less than the average cost. The condition of normal
profit can be given in the following formula.
Profit (P) <Average Cost (AC)
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On the off chance that organizations in an industry are encountering economic losses, some will
clear out. The supply curve moves to the left, expanding price and decreasing losses. Firms keep
on leaing until the remaining firms are no longer enduring lossesuntil economic profits are
zero.
Before inspecting the instrument through which entrance and passageway take out economic
profits and losses, we should inspect a vital key to comprehension it: the contrast between the
bookkeeping and economic ideas of profit and misfortune.
MC
AC
C0
P0
C0
P0
C0
E
Figure: Economic Loss
Y0
MR
AR
Here market price is OP0 less than average cost OP0 of produced output. Total revenue OP0C0Y0
and total cost is OP0C0Y0. So the economy loss is P0P0C0C0.
When the market structure is monopoly then shut down may occurred in the time of economic
loss but in the perfect competitive shutdown create loss in short run but no loss in long run.
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Conclusion:
The market structure of a country of any industry changes over time. In the initial level of an
industry, there are only few firms to dominate the firm and get more advantage and set price in
their own way. Because they know that there is no possible alternative of them. In the south
African telecom sectors the MTN or Vodacom initially set their price in their own way to make
more profit from the competitors. But when some others firms like Virgin enter into the market
become the market more competitive than before to set competitive prices.
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