Oligopoly
Oligopolies
A good applied example here of the strategic interdependence and non-price competition that occurs in oligopolistic markets. This example focuses on the games console market, where in response to the Nintendo Wii’s motion-sensor controllers, Sony have unveiled their own one; whilst Microsoft is joining the party later this year to go even further with a full body motion controller(!). Its a good example of how oligopolistic industries interdependence (follower-leader relationship) can be of benefit to consumers via dynamic efficiency aims.
•Behavioural Economics - •Game Theory - •Business Economics - •Competitive Markets - •Oligopoly -
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Apple and patent races
Here is a revealing chart showing the number of patent applications made by Apple contrasted with Google or Taiwan-based cellphone maker HTC. Between 2004 and 2007, when Apple was preparing the iPhone, it filed 507 patents, while Google filed just 67, and HTC filed none, according to the chart. Strikes me that this is a good chart to use when teaching the importance of research and patent protection as a basis for sustaining and exploiting product and process innovations.
•AS Micro - •Business Economics - •Monopoly - •Oligopoly - •Economic Growth - •Economics of Technology - •Teaching of Economics -
Tags: innovation, google, apple, patents
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Coke follows Pepsi’s lead
Last year, Pepsi acquired its bottlers in a (backward) vertical integration step. Today Coca-Cola announced it was following their lead, by doing the same with its North American and Scandinavian bottling businesses. They believe the $12.6 bn (non-cash) deal will reorganise its manufacturing and distribution operations, delivering $350m in synergies over four years.
read more...» •Business Economics - •Competitive Markets - •Management Issues - •Oligopoly -
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Google is the new Microsoft
With an 80-90% market share in online search, Google is increasingly becoming the new Microsoft in the world of anti-trust legislators. It has again come under scrutiny, as discussed here in the FT, this time accused that its search algorithm discriminates against certain competitors.
read more...» •AS Micro - •Business Economics - •Competitive Markets - •Monopoly - •Oligopoly - •Price Discrimination - •Competition Policy -
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OFT on Orange T-Mobile
In September last year, this entry discussed the Orange-T Mobile merger; and as expected, the UK’s Office of Fair Trading have today requested an official investigation into it.
“The OFT’s initial view, following consultation, is that the joint venture threatens significantly to affect competition in mobile telecommunications in the U.K.,”
•Business Economics - •Competitive Markets - •Economies of Scale - •Management Issues - •Monopoly - •Oligopoly - •Competition Policy -
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Apple’s Revenues
A stunning and clear illustration here of the surge in Apple revenues and the component parts. An entire ico-system has developed around the Apple suite of products. In the final quarter of 2009:
Revenues $15.7Bn
Profit $3.3Bn
3m Macs sold
9m iPhones
21m iPods
And now the iPad .... kindling for the Kindle.
•AS Micro - •Business Economics - •Oligopoly - •Economic Growth - •Economics of Technology - •Market Equilibrium and Price - •Nature of Demand - •Nature of Supply - •Teaching of Economics -
Tags: profit, innovation, itunes, apple, iphone, ipad, business growth
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Choco-oligopoly
A terrific interactive diagram from the Guardian showing the market shares in the world confectionery market.
•AS Micro - •Business Economics - •Oligopoly - •Teaching of Economics -
Tags: cadbury, nestle, confectionery, kraft
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TV price war begins…
The Telegraph reports on the news that the cost of watching live football and cricket is to be slashed in a price war.
read more...» •Business Economics - •Competitive Markets - •Oligopoly -
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Intel sued by FTC
At the end of December, the US Federal Trade Commission decided to sue Intel for anti-competitive behaviour, accusing the world’s biggest chipmaker of abusing its dominant market position over the past decade. “Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly,” said Richard Feinstein, director of the FTC’s Bureau of Competition. This is an excellent case study of the potential anti-competitive behaviour by monopolies in the market place.
•Business Economics - •Competitive Markets - •Management Issues - •Monopoly - •Oligopoly - •Competition Policy -
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Google turns to mobile phones
Following on from Geoff’s entry last week on the Nexus One, Google’s foray into the mobile business is due to a desire to dominate the market for Internet searches, just like it does on laptops and desktop computers. But as this article discusses here, it is not clear whether Google’s strategic decision is a sure-fire winner.
read more...» •Business Economics - •Competitive Markets - •Economies of Scale - •Management Issues - •Oligopoly - •Market Failure - •Information Failure -
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Contestable Markets - Google launches the Nexus One
Google has launched the Nexus One a “super phone” designed to challenge the established dominance of smartphones such as the iPhone, Blackberry and Palm Pre. For £330 buyers anxious to own a Nexus One without locking themselves into a lengthy contract with one of the major mobile phone operators can have a phone delivered that can run on any network.
read more...» •AS Micro - •Business Economics - •Economies of Scale - •Oligopoly - •Economic Growth - •Economics of Technology - •Market Equilibrium and Price - •Nature of Demand - •Nature of Supply - •Teaching of Economics -
Tags: demand, competition, price, google, iphone, contestable market, blackberry, contracts, android, nexus one
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Google Wave: Regulating Industries in the UK
The weekend wave focused on the regulatory agencies in markets and industries, the tools they have to influence prices, incentives, output and profits in different industries and some of the justifications for regulatory intervention and the downsides. We also created a cluster of good examples of competition policy in action during 2009 to bring our regulation / competition notes up to date. The main notes are below and you can also download a pdf version of the current wave - as always these waves are a work in progress!
read more...» •AS Micro - •Business Economics - •Monopoly - •Oligopoly - •Competition Policy - •Government Intervention - •Regulation - •Market Failure - •Teaching of Economics - •Google Wave -
Tags: inflation, prices, competition, price, costs, investment, profit, profits, incentives, regulation
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Tories plan break up of energy oligopoly
We have been studying oligopoly in our A2 micro and the issue of electricity and gas prices has been headline news for some time. Last week the Conservatives announced plans to break up the highly concentrated domestic energy supply market and inject fresh competition. This is reported here in the Guardian. There is a super paragraph that explains the oligopolistic nature of the industry:
“The industry has since consolidated into EDF, E.ON, RWE npower, Centrica, Scottish Power (owned by Iberdrola) and Scottish and Southern Energy, which control the production and supply of electricity and gas to almost all UK households and businesses. Only a handful of small independent power plant operators and tiny suppliers survive. Energy analysts say the market dominance by the Big Six makes it impossible for anyone else to gain a foothold.”
Market dominance is reinforced by the highly vertically integrated nature of these energy giants.
“they own power plants and source the gas themselves to supply their own customers. This means they will always be profitable at a group level because their retail businesses subsidise their power plant arms when generating costs are high and vice-versa”
The energy companies have been accused of engaging in implicit price collusion - tor the main product they most actively sell - direct debit for dual fuel, gas and electricity - the price difference between the cheapest and most expensive is £30 a year or around 60 pence per week. The consumer watchdog EnergyWatch has complained that British consumers are being ripped off by a “comfortable oligopoly” of bloated electricity and gas supply companies.
•Oligopoly - •Market Failure - •Oil and Gas - •Teaching of Economics -
Tags: supply, competition, price, costs, profit, cartel, vertical integration, price fixing, contestability, implicit collusion
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Google Wave: Benefits and Costs of Monopoly
The number of Google Wavers among the Economics teaching community continues to grow. Last night we generated ideas and resources useful in evaluating the impact of monopoly power in markets - the results are shown below
read more...» •AS Micro - •Business Economics - •Monopoly - •Oligopoly - •Government Intervention - •Government Failure - •Regulation - •Market Failure - •Teaching of Economics - •Google Wave -
Tags: competition, price, costs, production, trade, capacity, profit, innovation, profits, market failure
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GlaxoSmithKline and Pfizer choose to collaborate on HIV drugs
Here is an excellent highly relevant article on cooperative behaviour between oligopolistic giants. Two of the world’s biggest drugs companies GlaxoSmithKline and Pfizer have announced a plan to merge their HIV treatments in a joint venture. ViiV Healthcare is an attempt for both companies to limit the risks of costly races to find new profitable treatments for HIV/aids and give them an opportunity to counter the loss of the revenues as these companies lose patent protection and are open to competition from generic drug makers. It is a strong reminder of the very high fixed costs of research into new drugs; the long lead times between new drug development, testing and finally getting it to the market. And also the impact of the entry of generic drugs into markets once patent protection runs out. The new company has a 19% share of the global drugs market, in comparison to the Californian company Gilead’s 31%.
Drug firms’ collaboration pools HIV treatments (Independent)
IPO of HIV business is ‘up to shareholders’ (Telegraph)
•Business Economics - •Oligopoly - •Teaching of Economics -
Tags: competition, risk, costs, profit, oligopoly, joint venture, patent, pfizer, collaboration, glaxosmithkline
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RBS Lloyds sell-off
The UK market has fewer bank brands than most other countries and choice has fallen in recent years after the Spanish bank, Santander bought up Abbey, Alliance & Leicester and Bradford & Bingley, and Lloyds has taken over all of HBOS’s brands. However, as per a ruling from the European Commission, RBS will sell 318 branches while Lloyds will dispose of more than 600 branches over the next four years.
read more...» •Business Economics - •Competitive Markets - •Oligopoly - •Government Intervention - •Regulation -
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Walmart and Amazon Price War - Hyper Efficiency and the Consumer
A well publicised price war has broken out in the United States between Walmart and Amazon. Wal-Mart’s $10 promotion applies to the top 10 books coming out in November but the company is also selling 200 best-sellers for 50% of their list price. In a move that has sent shock-waves through the book industry, Wal-Mart has announced it will be selling 10 forthcoming books for just $10 each including Sarah Palin’s autobiography. As is often the case when an aggressive price war breaks out in an oligopolistic market, online bookseller Amazon matched the price cut within hours causing Wal-Mart to cut again to $9. Amazon returned the favour and Walmart has sinced shaved one cent to $8.99! The FT reports that Walmart’s website, the second busiest in the US after Amazon, has also cut prices by 50 per cent on 200 best-sellers.
The battle comes at a time when both Walmart and Amazon are under pressure from Google who are rolling out an online site capable of delivering e-books to any device with a Web browser, with an initial library of about half a million titles.
How long the price war will last is open to question. The October-December season is a hugely important time for all booksellers - the festive period is the peak time for sales and the intense battle for market share comes at a time of great change in the industry - not least the rapid growth of e-readers and online libraries. Some book publishers fear a price anchoring effect on their industry - namely that Walmart slashing prices and rivals following suit will lead book-buyers to expect new titles to cost $10, a low prices that would force the publishing industry to re-scale its entire business, including the advances paid to writers and ultimately affect the range of titles on offer.
For the giants of the book retailing industry, the economies of scale and drive for hyper efficiency in getting products to the market are simply a way of reinforcing their market dominance.
But what about the impact on smaller independent booksellers most of whom can never hope to compete on price but who provide light and shade in the book selling industry.
It is a reminder that there are different types of efficiency. Allocative, productive, dynamic and social. The latter two may be damaged if the price war escalates and many smaller booksellers go under. This BBC world service news interview focuses on some of the cultural issues of the rise of the giant retailers. Chris Doeblin from the independent Book Culture shop in New York City accepts that supermarkets will bring the price of books down - as they have with food prices - but at a (social) cost to many of us.
Guardian: US bookshops urge regulator to investigate online price war
•AS Micro - •Business Economics - •Economies of Scale - •Oligopoly - •Market Equilibrium and Price - •Nature of Demand - •Price Mechanism in Action - •Teaching of Economics - •US Economy -
Tags: supermarkets, prices, food, retailers, economies of scale, amazon, price war, allocative efficiency, walmart, dynamic efficiency
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Kindlenomics
Amazon has announced that it will start shipping the Kindle e-reader in the next few days. Leander McCormick-Goodhart is doubtful about whether this spells the end of books. The Kindle device is part of an increasingly contestable market space whose size is set to rise sharply in the months and years to come. I have added a few links to Leander’s blog post. According to Chris Nuttall in an FT blog last month “there are now more than 45 e-reader models available worldwide, according to E Ink, the dominant technology provider for their displays.”
read more...» •AS Micro - •Business Economics - •Competitive Markets - •Economies of Scale - •Oligopoly - •Economic Growth - •Economics of Technology - •Market Equilibrium and Price - •Nature of Demand - •Price Mechanism in Action - •Teaching of Economics -
Tags: competition, economics, entrepreneur, profit, innovation, profits, amazon, creative destruction, e-reader, joseph schumpeter
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Ticketmaster-Live Nation merger provisionally blocked by the CC
This morning, the Competition Commission announced that it has provisionally moved to block the merger between Ticketmaster (the world’s largest ticketing firm) and Live Nation (the world’s biggest concert promoter).
read more...» •Business Economics - •Competitive Markets - •Monopoly - •Oligopoly - •Competition Policy - •Government Intervention - •Regulation -
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Banana Price War Must Hit Growers
The supermarkets are spinning the latest price war for sales of bananas as a welcome boost to the spending power of hard-pressed consumers. True in the short term - cheaper bananas in my household will simply encourage me to buy more but ultimately throw most of them away. The medium term impact on banana growers is of much greater importance and it is this issue that was addressed in a timely and useful Big Question feature in the Independent yesterday. Here is the link.
The Big Question: Why are bananas so cheap, and what does it mean for producers?
There is a huge amount of economics in the article not least some evidence on the oligopsonistic power of banana growers and the oligopolistic battle for market share among the major retailers:
“Banana production is an operation on a gigantic industrial scale and is dominated by just five huge companies, Chiquita (formerly United Fruit), Dole, Del Monte, Noboa and Fyffes, which control 80 per cent of the global trade between them.”
“Asda - which sells two million kilograms of bananas a week - is charging 46p/kg. On August 25, the price was 84p/kg and 99p/kg last Christmas. Tesco and Sainsbury’s had been forced to match Asda’s price while the cost of bananas at Morrisons has fallen to 57p/kg and 59p/kg at Waitrose.” (Daily Mail)
More here
•AS Micro - •Business Economics - •Oligopoly - •Commodities Markets - •Market Equilibrium and Price - •Nature of Demand - •Nature of Supply - •Price Mechanism in Action - •Price Volatility -
Tags: supermarkets, price, production, retailers, oligopoly, price war, fair trade, market power, bananas, oligopsony
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Hold the phone!
For those of you are thinking of buying an iPhone, you would probably do well to wait until Christmas it seems. The exclusivity agreement between Telefonica-O2 and Apple is set to expire in the next few months, which could lead to an all-out price-war in time for the festive season. As the exclusivity is removed, it should make the market more contestable, and the price should fall.
read more...» •Business Economics - •Competitive Markets - •Oligopoly - •Price Discrimination -
Tags: demand, supply, competition, price, strategy, iphone, price elasticity, contestable market, o2, vodafone
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Orange-T?
Is this going to be the new name of the proposed merger between T-Mobile and Orange?
read more...» •Business Economics - •Competitive Markets - •Economies of Scale - •Management Issues - •Oligopoly -
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Oracle-Sun merger
Despite getting clearance from the U.S Department of Justice, earlier this month, Europe’s top competition regulator today opened a full, in-depth inquiry into the proposed $7.4bn acquisition of Sun Microsystems by Oracle, citing concerns about the potential for anti-competitive effects if the merger went ahead unconditionally.
•Business Economics - •Competitive Markets - •Economies of Scale - •Monopoly - •Oligopoly - •Competition Policy - •Economic Growth - •Economics of Technology - •Government Intervention -
Tags: prices, competition, merger, takeover, oligopoly, competition commission, european union, contestability, oracle, anti-competitive
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Browser Wars!
Over the summer, it seems that the browser wars have intensified, and Microsoft’s Internet Explorer’s virtual monopoly has its days numbered. Earlier this year, Google brought out its Chrome browser, to rival Microsoft’s Internet Explorer, and today it was announced that Google have signed a deal to get it in to Sony PCs.
•Business Economics - •Competitive Markets - •Monopoly - •Oligopoly - •Competition Policy - •Economic Growth - •Economics of Technology - •Market Equilibrium and Price - •Price Mechanism in Action -
Tags: competition, google, contestable market, creative destruction, bing, internet explorer, firefox, chrome, browser
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Game on!
Oligopolistic theory predicts that firms in such a market structure will tend to prefer non-price competition rather than price competition due to the self-defeating outcome of a price-war.
read more...» •Business Economics - •Competitive Markets - •Oligopoly -
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Smart Phones - Smart Money for Apple and RIM
Feature rich smart phones such as the iPhone and Research in Motion’s Blackberry account for a disproportionate share of the operating profits of mobile phone manufacturers.
According to new research by Deutsche Bank, Apple and Research In Motion were responsible for 3% of all cellphones sold in the world last year but 35% of operating profits. In 2009 the figures are forecast to be 5% of the global market in unit terms but 58% of total operating profits. Together Apple and RIM had about 32% of the smart-phone market. Nokia dominates the basic mobile phone handset market where operating margins are much thinner.
The key to understanding the huge profits of smart phone makers is the subsidy offered by the mobile phone network providers who tend to treat mobile handsets as loss-leaders. They are happy to sell a phone for £60 or less because they can recoup the money and more through lucrative monthly call plans where the bulk of users (consumers) are locked in through minimum length of service contracts.
Palm Inc is trying to break into the cell-phone market and take some of the supernormal profits available.
•AS Micro - •Business Economics - •Economies of Scale - •Oligopoly - •Economic Growth - •Economics of Technology - •Market Equilibrium and Price - •Nature of Demand -
Tags: profits, apple, iphone, blackberry, loss leader, smart phone, research in motion, palm
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Economics Trivia - Global Sales of Mobile Phone Units
Global sales of mobile phone handsets set to fall by 10% in 2009
Nokia is the dominant manufacturer with 38.5% of the market in 2008
Average selling prices of their handsets have fallen from Euro 74 to Euro 62, operating margins are close to 10%
245 million mobile phone handsets were shipped in the first three months of 2009
Source: The Times (17-07-09)
•AS Micro - •Business Economics - •Oligopoly - •Economic Growth - •Economics of Technology - •Global Economy - •Quirky Trivia -
Tags: prices, nokia, mobile phones, handsets, operating margin
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LCD manufacturers are screened for price fixing
Here is an example of alleged price fixing that directly affects the prices that consumers pay in the market for their durables. The European Union competition commission are alleging that manufacturers of LCD screens have been engaged in a price fixing cartel in a market thought to be worth an estimated £43bn a year. The industry is dominated by LG Display and Samsung, which together have about half the market for television and computer monitors. Phillips, Sharp and Hitachi are also heavily involved in the market along with Chi Mei from Taiwan.
LCD panels are used in televisions, computer monitors and a range of smaller electronic gadgets including mobile phones and digital music players. The investigation into price fixing has crossed several countries including US, Japan, South Korea and Europe. In theory, fines for breaches of anti-trust laws can be as much as 10 per cent of annual turn-over.
•AS Micro - •Business Economics - •Oligopoly - •Competition Policy - •European Economy - •Government Intervention - •Regulation - •Market Equilibrium and Price - •Nature of Demand -
Tags: prices, competition, cartel, collusion, anti-trust
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Petrol price war breaks out
Here is an example of the kind of periodic price war that is characteristic of an oligopolistic market. The Guardian reports that the supermarket chain Asda has cut the cost of unleaded petrol and diesel to 99.9p a litre at all its 176 fuel stations. .Sainsbury’s, Morrisons and Tesco are the other main players in the market, and the Automobile Association believes that they will follow Asda’s lead.
Is Asda really the price leader in the UK petrol retail market - Morrisons has already followed suit by dropping prices to what is considered to be the psychologically important price of 99.9p per litre or less. Most supermarkets engage in price-matching in local areas so if a rival’s prices are going down, then they will go down as well - to some economists this is a form of hidden price fixing.
Or is this move part of a wider phase of price competition across the supermarket chains, using ultra-low profit margins on fuel to entice customers into their stores? The report says that the number of petrol stations in the UK has fallen to about 9,000, from a peak of 30,000 three decades ago and that smaller independent petrol stations would struggle to match the firepower of the big supermarkets. A 2p drop in the price of petrol saves the average UK family £4.34.
The average charge per litre for unleaded has been 103.8p, ranging between 99.9p and 115.9p.The average for diesel was 105.3p, ranging between 99.9p and 117.0p.
•AS Micro - •Business Economics - •Oligopoly - •Market Equilibrium and Price - •Nature of Demand - •Nature of Supply -
Tags: supermarkets, competition, price, oligopoly, price war, kinked demand curve, price leadership, price matching
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Windows for a new generation?
It seems that Joseph Schumpeter’s process of creative destruction is still going full throttle ahead, with Google’s announcement this week of a operating system (Chrome OS) to rival Microsoft’s dominance through Windows.
read more...» •Business Economics - •Competitive Markets - •Economies of Scale - •Oligopoly - •Economic Growth - •Economics of Technology -
Tags: competition, price, entrepreneur, profit, innovation, google, microsoft, duopoly, creative destruction, schumpeter
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