Type Of Market The Bahrain Telecommunication essay example

1,431 words
Introduction Since the opening the market of the Bahrain telecommunication industry, it has gone through major structural changes. As with most opening of markets of former public companies, the government wished to see increased efficiency in the service of telecommunication. Nouradeen (2005) By opening the market, the government hoped that the incentive of higher profits would act as a reward for efficiency, meaning that more effort would be made in research and development of new techniques so as to make the service more efficient. In order to pass savings onto the consumer, the telecommunication companies would have to work under certain restrictions imposed by the government and the telecommunication regulator, (TRA), which were designed to prevent private monopolies exploiting the consumer. The aim of this project is to investigate to what extent the industry has changed since these changes were implemented and how the price of telecommunication to consumers has been affected by these changes. The opening of the market in this industry has seen Two main stages: Firstly, Ba telco, a company which was effectively a monopoly ran from the 1960's until the first step to opening the market in 2003.

This stage on the road to opening the market was to introduce competition in direct supply for customers, thus introducing the idea of competition into the industry, allowing a small proportion of the market to be run to a certain extent by the market mechanism. By 2003 the telecommunication company was introduced m tc Vodafone and was set up to provide mobile services for the country. TRA (2003). This effectively meant that in a particular area of service a different company was in a position of to create competition to the sole provider in mobile services. (Which was regulated by the government). Akbar Al khaleej (14: 2003) The question that I wish to answer is: -To what extent did the restructuring of the telecommunication industry affect the price of telecommunication to consumers and for what reasons did this occur?

Economic Concepts The market for telecommunication in the Bahrain has undergone several important structural changes as outlined in the introduction to the coursework. Initially, before opening the market, the telecommunication market was a public monopoly which meant that although it had all of the features of a monopoly it was controlled and owned by the government and thus it was intended to provide the best price for the consumer. However, the idea of opening the market the industry was that the extra competition found in the market would allow the consumer to see a further fall in price, particularly as the competition should have increased finance of research and development and therefore increased efficiency in the market. However as competition in direct supply between the regional telecommunication boards in all areas became legalized the market has taken the form of a new, competitive market. Thus since the beginning of opening the market it has seen a transformation from public to private monopoly and then to a new market type.

This can be related to the three main types of economies; namely the planned / command economy, the mixed economy, and the free-market economy. In fact, when the government ran the telecommunication market, it fitted into the planned economy in which resources are semi allocated by the government. Since opening the market though, when the telecommunication industry has been competitive it could be said to be run as a mixed economy would be - effectively free-market competition with government controls to try and ensure equitable behavior by the telecommunication providers. By examining the features of different types of market structure as follows, I hope to establish what type of market the Bahrain telecommunication is based upon. Monopolies Monopolists have a 100 percent market share (in theory - in practice a monopoly needs 25% share) and thus they face the market demand curve, as they are the only firm operating in the particular market. Monopolists are therefore constrained by the level of market demand at a particular price or by the level that consumers are willing to pay for a product at a given output.

Monopolists can thus choose the output or the price level at which to produce but they cannot determine both. The monopolist's demand curve (AR), and the diagram also includes the monopolist's marginal revenue (MR line as well as the monopolist's marginal cost curve (MC). The conditions necessary for monopoly to exist are: 1. A 100% market share (in real life a 25% share is deemed to be monopoly) 2.

No close substitute products (thus giving relatively inelastic price elasticity of demand) 3. The monopolist is a short run profit maximizer 4. There are barriers to entry to prevent new firms entering the market The monopolist is assumed to be a profit maximizer and therefore charges at the profit maximis ing output at the point where marginal cost (MC) cuts marginal revenue (MR) and therefore the firm charges a price of Pm and produces an output of Qm. In this case, the cost of the marginal unit is therefore equal to the cost of the marginal unit and so the firm is maximis ing profits.

However, to look at the profits we add the average total cost curve (ATC). The level of abnormal profits made by the producer ATC and price multiplied by the quantity produced. Sloman (2001) Perfect Competition The conditions needed for perfect competition to exist are as follows: 1. Many buyers and sellers operating in the market - therefore no individual can control price or output decisions 2.

Homogenous products - the products on the market are perfect substitutes for each other. This means that no brand loyalty exists and therefore the consumer makes purchasing decisions solely on price 3. Transport costs do not exist - the product has the same price everywhere 4. Consumers have perfect knowledge and know all prices and can thus buy at the lowest price available to them 5. Firms have freedom of entry and exit to the market - losses cause firms to leave the market whilst profits attract new firms 6. No government intervention into the market 7.

The consumers' aim is to maximize satisfaction from a limited income. The aim of the firm is to maximize profits by charging the highest available price Sloman (2001) OligopoliesOligopolists are situated in between the monopolistic market and the perfectly contestable market. Whilst perfectly competitive firms are often known as "price takers", and monopolists re known as "price makers", oligopolist's are known as "price searchers" because they change their price according to the prices of their rival firms. The conditions of oligopoly are as follows: 1. A few large firms must exist in the industry. For example, a small number of firms have around a 90% market share 2.

Products must be branded to the extent that consumers are willing to pay more for a product which they consider superior 3. Barriers to entry must exist within the market. These could include artificial barriers to entry such as legislation or natural barriers such as high start-up costsOligopolists have a kinked demand curve because the theory assumes that oligopolist's will assume the worst case scenario about their competitors' reactions to a change in price. if the oligopolist raises its price from P to P 1 then its competitors are unlikely to react in the same way and will therefore undercut the firm. If the firm should choose to lower its price then the other firms are likely to follow with a similar price change. For a rise in price, demand is elastic because consumers can buy the product from any of the other firms which are still selling their product at the original price. Conversely, a fall in price will see an inelastic change in demand because the other firms in the market will imitate this fall and so demand is unlikely to alter.

Sloman (2001) Which type of market structure has the telecommunication industry follow through the transition of opening the market? From prior to opening the telecommunication industry clearly shows the feature of a monopoly. Consumers can only buy their telecommunication from one firm - namely the sole telecommunication company. Telecommunication certainly does not have any close substitute products which means that the i.