The Mobile Phone Market

Topics: Economics, Perfect competition, Microeconomics Pages: 5 (1387 words) Published: April 11, 2011
Contents Page
Section No.

1. Introduction 3

2. Oligopoly 3

3. Perfect competition 4

4. Profit 5

5. Cost 6

6. Conclusion 7

7. Reference 7

The mobile phone market in England is a oligopolistic market, which are shared by Orange, Vodafone, O2 , Virgin Mobile and T-Mobile. So, this essay is complied to introduce the oligopoly and another market structure, analyzing goal of the firm and the reasons influence the costs of a firm. Oligopoly

A small number of large firms
The mobile phone market is a typical oligopolistic market, there are only several companies to run. Two keys characteristics the oligopoly has, which fist is an industry dominated by a small number of large firms, each of which is relatively large compared to the overall size of the market. This characteristic gives each of the relatively large firms substantial market control. While each firm does not have as much market control as monopoly, it definitely has more than a monopolistically competitive firm. The total number of firms in an oligopolistic industry is not the key consideration. A oligopoly firm actually can have a large number of firms, approaching that of any monopolistically competitive industry. However, the distinguishing feature is that a few of the firms are relatively large compared to the overall market. A given industry with a thousand firms, for example, is considered oligopolistic if the top five firms produce half of the industry's total output. Barriers to entry

Firms in an oligopolistic industry attain and retain market control through barriers to entry. The most noted entry barriers are: (1) exclusive resource ownership, (2) patents and copyrights, (3) other government restrictions, and (4) high start-up cost. Barriers to entry are the key characteristic that separates oligopoly from monopolistic competition on the continuum of market structures. With few if any barriers to entry, firms can enter a monopolistically competitive industry when existing firms receive economic profit. This diminishes the market control of any given firm. However, with substantial entry barriers found in oligopoly, firms cannot enter the industry as easily and thus existing firms maintain greater market control. Consider the mobile phone market dominated by Orange, Vodafone, O2 , Virgin Mobile and T-Mobile. Each of these firms has produced communication service for several years. They have well-known brand names, a good service system, and have great reputation in public. The below graph (1-1) shows that the price and output behavior that may be seen in an market structure.


Point P is ruling market price. At price higher than P demand is relatively elastic because all other firm’s prices remain unchanged. So the firm who changed higher price would loss of market share. However, at price lower than P, demand is relatively inelastic because all other firms will introduce a similar price cut, eventually leading to a price war. Therefore, the best option for the oligopolist is to produce at point E which is the equilibrium point and the kink point.

Perfect competition
Perfect competition describes a market in which there are many small firms, all producing homogeneous goods. In the short term (1-2), such markets are productively inefficient as output will not occur where MC is equal to AC, but allocatively efficient, as output under perfect competition will always occur where MC is equal to MR, and therefore where MC equals AR. However, in the long term (1-3), such markets are both allocatively and productively efficient. In general a perfectly competitive market is characterized by the fact that no single firm has influence on the price of the product it...
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