• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6
  7. 7
  8. 8
  9. 9
  10. 10
  11. 11
  12. 12
  13. 13
  14. 14
  15. 15
  16. 16
  17. 17
  18. 18
  19. 19
  20. 20
  21. 21
  22. 22
  23. 23

The Australian Mobile Communication Industry.

Extracts from this document...


MANAGERIAL ECONOMICS 7103 MR. DAVID MURPHY ASSIGNMENT 2 - INDUSTRY ANALYSIS REPORT The Australian Mobile Communication Industry Word Count: 4156 Name: Thien Ming Foo ID: 1097241 Email: tmingfoo@yahoo.com Date: 25th April 2003 1. EXECUTIVE SUMMARY 3 2. INDUSTRY TRENDS 4 2.1 PRODUCTION 4 2.2 INDUSTRY PARTICIPANTS AND COMPETITION 5 2.3 PRICES 6 2.4 INVESTMENT 7 2.5 PROFITABILITY 7 3. DETERMINANTS OF CHANGES IN DEMAND AND SUPPLY 8 3.1 INCOME 8 3.2 NETWORK EFFECTS 8 3.3 PRICES OF RELATED GOODS 9 3.4 NEW USAGES 9 3.5 NUMBER OF SUPPLIERS 10 4. DEMAND ELASTICITY 11 5. THE NATURE OF THE COST STRUCTURE 12 5.1 SHORT-RUN PRODUCTION CURVE 12 5.2 SHORT-RUN COST CURVE 13 5.3 LONG-RUN COST CURVE 15 6. PRICING STRATEGIES AND INTERACTION BETWEEN OPERATORS 16 6.1 NEW ENTRANT'S PRICING STRATEGY 18 7. THE NATURE, EXTENT AND IMPACT OF GOVERNMENT POLICIES 19 8. RECOMMENDATIONS 21 9. BIBLIOGRAPHY 23 1. Executive Summary As requested by the investor, Murphy Inc, the objective of this research paper is to assess the viability of investing in the Australian mobile industry: to build and operate a next generation 3G mobile network. There are three main parts to this paper: the industry trends and statistics, in which the paper is based on; the analysis of the data using economic methodologies; and finally the investment recommendations. Firstly, the analysis in this research paper is based entirely on the same trends and statistical data sets that the Australian Competitive and Consumer Commission uses. The exclusive nature of the data and its quality serve as the robust foundation in which the analysis is built on. There is certain lacking in the data, however, such as insufficient granularity in terms of quantity demanded at different price level, the precise costs of the operators, etc. These data are necessary to derive greater precision in the analysis. Secondly, the analysis in this paper uses economic methodologies to assess the market structure of the industry. ...read more.


The three remaining new entrants, backed by solid foreign parent companies, will likely have the staying power to reach the critical mass - about half a million subscribers - thereby causing an increase in supply to the market. As the new networks have comparable features compared to the established players, price competition appears likely to be a key strategy. 4. Demand Elasticity Since there is no sufficiently granular data in terms of the change in quantity demanded, and the price of mobile service has been held constant for an extended period, it is not possible to compute the precise elasticity of demand. However, there exist conditions to conclude that the demand for mobile service is both price and income elastic. Two reasons suggest that mobile service is price elastic. Firstly, the cost of mobile service, in proportion to the income of a significant percentage of the user base, the residential users, is a big-ticket item. Any change in this already significant cost will likely compel the users to reappraise their expenditures. Secondly, fixed line service as a very affordable substitute is pervasively available with 99.75% of households covered by Telstra's PSTN network.4 The combination of the two factors, significance of cost and availability of substitute are likely to cause high price elasticity. The analysis in the earlier section indicated that rising income is one of main factor to cause the demand curve for mobile service to continuously shift to the right. The income effect hints that mobile service is at least a normal good or is positive income elastic. This can be further substantiated by research conducted for the mobile telephone manufacturer Nokia, which indicated that for the vast majority of Australians, the key reason for buying a mobile service is lifestyle considerations.5 5. The nature of the cost structure In this section, the paper analyzes the fixed and variable cost structure of the typical mobile service operator operating in an oligopolistic market. ...read more.


* High barrier and cost of entry - The entrance of new operators into the market will encourage the industry marginal revenue to eventually equal that of the demand curve, hence facilitating a market equilibrium that is allocatively efficient. However, the licensing requirement, high entry cost, and the network effects that the existing operators already have, all contribute to the lack of competition in the market. * Government conflict of interest - The government's majority stakes in Telstra presents a conflict of interest that disadvantages the private or foreign firm in entering or competing in the market. * Restriction of technological change - Technological change enables the operators to continuously innovate and implement new technology to derive greater efficiency and lower cost. This also allows the operators to compete based on performance and functionality differences. However, the restrictions currently in place favor those with economies of scope/scale and high network effects. To compete successfully in the Australian mobile service industry, Murphy Inc should therefore employ one of the following strategies, * If the firm is a foreign telecom operator, it should therefore seek to acquire or invest in one of the three dominant firms. This strategy is similar to the recent Singapore Telecom acquisition of Optus. This allows the acquiring firm to inherit the market power of the oligopolist, and to consolidate its international operations to further strengthen its economies of scope/scale. * If the firm seeks to establish its own infrastructure, it has to be a firm with a sufficiently large war chest. Given that the differentiation strategy is not possible, it would necessitate the firm to assume a price leadership strategy and sustain an extended loss period, as discussed in Section 6.1, before it builds up the critical mass and its own network effects. Such is the case of Hutchison 3G, backed by the namesake Hong Kong based conglomerate. As and when the firm reaches the economic breakeven point, then it has qualified itself a seat in the oligopolistic club of Australian mobile service industry. 9. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Peer reviewed

    Explain the main features of the behaviour of firms which operate in an oligopolistic ...

    5 star(s)

    Firms often collude in an attempt to stabilise unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place -

  2. Is the Watch Industry dominated by an Oligopoly which is beneficial to both firms ...

    When importing any goods, the exchange rate would be a factor in cost of goods. However, I do not feel that this has a large effect on prices or the market, so I will not investigate any further into this.

  1. The Nature of Macroeconomics

    negative effect on employment and production * Interest rate �, compensate suppliers of money (lenders/savers) for falling value of $ repaid, negative effect on employment and output * Australian's inflation > overseas, exports v and imports �, reduces output and employment and CAD � * Government may tighten both fiscal

  2. Retailing In India - A Government Policy Perspective

    But that would need a committed effort. No. of Stores in 1996 No. of stores in 2001 Traditional 1,920,604 2,565,028 Supermarkets 13,079 152,194 Convenience Stores 18091 Hypermarkets 593 S.No TOP 10 RETAILERS Turnover $ m No.

  1. To what extent is the UK airline industry a contestable market?

    The UK airline industry has the characteristics of a contestable market, except that it has a few sunk costs that act as barriers to entry which can prevent new entrants coming into the industry.

  2. An Empirical Investigation into the Causes and Effects of Liquidity in Emerging

    Kamin and Kleist (1999) suggest that lower interest rates in the US make risk on EME debt look more attractive and increase investor risk tolerance. The empirical findings of Ferrucci et al (2004) confirm this, with US 30-day Treasury Bill yields' having a large significant positive effect on EME bond spreads.

  1. Chinese car market overview. Citroen case study

    The country has around 100 different car constructors, which involves a very decentralized market a lots of production sites. The national production is very much turned towards utility vehicles, such as buses, lorries, also recently the private vehicle has been very successful.

  2. Use game theory to analyze an oligopoly competition of two great rivals, Wal-Mart and ...

    Wal-Mart may had realized what a ponderate problem that is and opened new stores in city centers of Shenyang, Guiyang, Nananing and two hypermarkets in business commercial area of Beijing. The statistics I collected include locations and total sales before and after Wal-Mart changed its strategy in comparison with Carrefour, which insists on locating in central areas.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work