Economics extended essay market structure


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The company commenced its operations in the year It started off with a zero inventory model exclusive of any franchisee or dealer network. Asian Sky Shop also has over manufacturers from India and abroad that contribute to their comprehensive product range. The company has a distribution channel spanning 65 cities including Mumbai; that supports the marketing team and helps the company reach out to the customers, not only in India, but other countries such as United Arab Emirates, Nepal and Bangladesh.

In mumbai Asian Sky Shop operates through informercials on the television, their online shopping website and occasional sales. In a perfectly competitive market where each player in the industry is a price taker and no one has the power to influence the price. While in perfect competition there are infinite number of buyers and sellers in the market — it is not the case in the teleshopping industry in Mumbai.

There are only 20 players, which operate in the teleshopping arena. Barriers to entry do exist in terms of high operating costs and as well as considerable amount of initial investment, in contrast to a perfectly competitive market where no barriers to exit or entry exist. The teleshopping industry in Mumbai does fulfill two of the features of a perfectly competitive market, but partially. Firms in the teleshopping industry do tend to maximize profits in the long run due to barriers to entry, which prevents new firms to enter the market and incarcerate excess profit.

Teleshopping industry mostly sells differentiated products, but in some rare cases they do sell products of a similar third-party manufacturers and compete on homogenous goods from the same brand.

The characteristics of a monopolistically competitive market are similar to perfect competition, except with one difference — in a monopolistic market the goods sold are differentiated. There are few barriers to entry and exit in a monopolistically competitive market; high barriers exist in the teleshopping market in Mumbai. Therefore, monopolistic competition is ruled out as a possibility. An Oligopoly is a market structure found lying in-between the extremes of perfect competition and monopoly.

The defining line between monopolistic competition and oligopoly can be very thin and many of the markets have in fact elements of both. Hence, there is perfect knowledge in terms of costs and demand functions. The decision of a single firm influence, and are influenced by, the decision of other firms. The company sells branded products; which are close-substitutes, homogenous like the Mp3 Player by Apple Inc.

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Government regulations and economies of scale as Oligopolistic firms are able to advantage from economies of scale that reduce their production costs and prices. Because of India being a country with many cultures and many languages, even media and advertising costs are much higher as they need to advertise the same products in different languages on different channels to reach a large customer base.

The firms in the teleshopping can earn abnormal profits in the long-run scenario as high barriers to entry prevent nonessential firms from entering the market and capture extra profits. Oligopolists produce where marginal revenue equals marginal costs, thus maximizing profits as seen in the diagram below.

Oligopolies do not satisfy this; yet sustain satisfying profits year after year. Oligopolies often sustain economic profits. They produce where price is greater than average total cost, therefore not being productively efficient. They also produce where price is greater than marginal cost, meaning firms neither produce in the least costly way nor produce the accurate amount of product according to demand of the society.

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At this price, their output is below the output at which minimum average total cost is reached. Therefore, there is under-allocation of resources. During the inception of teleshopping in India, there were hardly a couple of players besides Asian Sky Shop, Telebrands and Teleshopping Network, although TSN stop its operations, and now only trades through their online portal. The number of television channels was also pretty limited at that time. However, it is only recently that corporate giants such as Network 18 and Star TV have ventured into the teleshopping arena.

Today across the various channels, there must be over 20 different payers in the teleshopping league. Although the competition is changed through time, the company believes that there is no significant change in the market share. People of Middle and Upper-Middle Class backgrounds comprise of the majority of their customer base. There can be numerous types of oligopolistic competition. In some situations, there can be collusion to raise prices and restrict production, very similar to a monopoly.

But there are legal restrictions to such kind of collusion to exist. But no collusion exists between firms in the industry and competition is fierce among market players, with relatively low prices and higher sales. Therefore the company takes decisions based on the analysis of likely reaction from the rivals; but not always.

Firms in an oligopoly compete for market share in several ways. However, there is an important distinction between price and non-price competition. Price competition involves discounting products in terms of price to increase the demand. Therefore, I conducted a product comparison test, where five different products were taken by three major firms operating in the teleshopping industry to see if they were competing on price. Star CJ, which is one of the four largest firm in the market could not be included in this comparison as the company is yet in the stage of developing their website, therefore therefore, there was no data available on product range and pricing.

In this case, all three firms are selling a differentiated product — kitchen appliance. There prices vastly differ from each other. Both of them are selling the same product yet with a slight difference in price.

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There is again disparity in how these firms are stated the retail price of the product and the discount they are giving. Telebrands apparently does not sell any third-party products. Again two out of the three firms sell this differentiated tool set. All three firms are selling a differentiated fitness product.

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Very vast price differences and only Homeshop 18 is offering a discount. Non-price competition emphasizes on other strategies except price. These strategies for Asian Sky Shop in particular include mass media advertising and marketing, internet shopping, home delivery, easy payment options, customer loyalty cards and schemes, financial incentives for shopping at off-peak times like the current week long sale that they are conducting.

As Asian Sky Shop engages more into non-price competition, what they compete is on advertising and promotion.


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Advertisements unlike price cuts that can be quickly matched with are not easy to duplicate. Because Asian Sky Shop is a part of a large television network, they have enough resources to aggressively advertisement their products. Although, there are both positive and negative effects of this.


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