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Microeconomic Analysis ofMobile Phones Industry Prepared by: Dipesh Agrawal NMIMS-PGDM-03
Introduction• The number of manufacturers are estimated to be around 100.• The major players are Samsung ,Nokia , Apple and others including ZTE ,LG etc.• India has the worlds second-largest mobile phone user base with over 929.37 million.• It falls under the category of oligopoly type of market structure.• People are more concerned with brand and type of software rather than looks.
Characteristics• Number of Firms- A few relatively large firms hold most of the market share and heavily compete like samsung and nokia.• Mutual interdependence- It occurs when firms consider their rivals reactions while adjusting prices, outputs, or product lines.
• Product Differentiation- The products sold by samsung ,nokia are substitutes. So, it should be easy in recognizing its brand name, packaging and so on.• Advertising- The players in industry are forced to advertise their product with a view to capture the market share. In fact, the players compete on these lines rather than resorting to price cutting to attract buyers.
• Strategic Behavior- The number of firms is few, the action of even one will have some effect on the other firms in the group. The group may have a dominant leader, though the other firms may not follow him in all respects.• Huge Investments- The industry involves huge cost in setting up as it requires capital intensive resources and skilled people.
Kinked Demand curve
Price in Mobile Phone industry• Firms are price setters and has the power to set prices. For instance, a firm who faces a downward sloping demand curve can choose price.• When one firm has a dominant position in the market it may experience price leadership.• The firms with lower market shares may simply follow the pricing changes prompted by the dominant firms.
Condition for profit• Firms can retain long run abnormal profits as high barriers of entry prevent sideline firms to capture excess profits.• Firms collaborate to charge the monopoly price and get monopoly profits.• Firms compete on price so that price and profits will be the same as a competitive industry.• Firms price and profits will be between the monopoly and competitive ends of the scale .