Duopoly Structure In Telecommunication Industry Essay

Question:

Discuss about the Oligopoly, Monopoly and Duopoly in Australia.

Answer:

Introduction

There are different forms of market exists in an economy. The most simplistic form of market is perfectly competitive market. In real world, perfect competition is not observed. Imperfectly competitive markets dominate the economy. Monopoly, oligopoly, monopolistic competition, duopoly are some common form of imperfectly competitive market. Rail, Communication industry are examples of monopoly market. In these markets generally one single seller dominates the entire market. The structure of telecommunication industry in Australia is monopoly in nature. Previously Telstra was well known as the monopolist in the industry. However, with increasing number of consumer subscribed to Optus services, there is high chance that industry structure takes the form of a duopoly market.

Essence of the Story

In a recent article published on ‘The Sydney Moring Herald’ Chief executive of Singtel-Optus revealed how their company in almost in line with Telstra and increases their market share at a rapid space. There are already a duopoly structure prevailing in the Australian airline industry and Supermarkets. In the supermarket structure, Woolworths and Coles are two major players. Virgin Australia and Qantas are two dominating players in airlines business. In Australia Telstra was in monopoly position for a long period. Optus challenge the monopoly position of Telstra (smh.com.au 2017). It is the second placeholder in the telecommunication industry. By continuously downing its price and introducing attractive offers, it is now successful in increasing the number of subscriber and competes with Telstra. More than 80% customers in mobile industry and 60% subscribers using fixed internet prefers either Optus or Telstra services.

For Singtel-Optus to become the second largest mobile or internet operators in telecommunication industry, the share of Vodafone Hutchison Australia needs to be reduced. In the telecom industry, TPG Telecom is trying to become a leading brand in the industry. It buys iiNet at the worth of $1.56 billion to leave Optus behind and takes the second place instead (news.com.au 2017). However, Optus executive is quite satisfied with their marketing strategy and confident about holding the large pool of subscribers. Market data reveals that Vodafone customers are very sensitive to price change and prefer to switch their subscription in case any type of dissatisfaction. Telstra provides high quality services and thus seems as a reliable service provider. Vodafone customers often suffer with interrupted connection because of inferior network. To cover this, the company often offers big discount.

Economic theories and concepts

Monopoly

In a monopoly market there is a single seller selling a product that does not have any close substitute. Monopoly market offers the seller huge market power. Being a single seller in the market, the monopolist has complete control over the price and quantity supplied in the market (Dunne et al. 2013). In fact, in the monopoly market a small amount of good is supplied at a high price as compared to a competitive market. In order to have a monopoly position the producer needs to sell some unique good or services, has a control over some strategic input that enables him to produce better quality goods or services.

In Australian telecommunication industry, Telstra acquired a monopoly position with offering a better quality services as compared to other service providers (Frank 2014) Other service providers like Optus, Vodafone fail to provide similar quality price at the same price.

Oligopoly

Oligopoly is one form of concentrated market. Here, market share is concentrated in the hands of few large sellers. The strategy of the sellers is related with each other. If one seller reduces price of the product then it is likely that other will do the same (Waldman and Jensen 2016). This is termed as price war among the sellers. In the price war, powerful producers usually win over others because of their ability to continue production even at a very low price. In order to eliminate rival the strategy of price war is often seen in this industry.

Telstra, Optus, Vodafone and TPG telecom are some leading service providers in Australian telecom industry (Williams 2016). Though lion share in the industry are captured by Telstra Optus and TPG telecom are making effort to break the monopoly of Telstra. They are trying to improve their service quality and offers big discount to attract customers.

Duopoly

Duopoly is a special form of oligopoly. In this form of market, there are only two large players. In the duopoly, market concentration is higher than that in the oligopoly. Because of high concentration, they sometimes enjoy monopoly like power (Howell 2014). Singtel-Optus is improving its service both in mobile networks and internet services. Therefore, there is high chance of having a telecommunication duopoly in Australia.

Recommendation

Telecom service providers should look after all the service needs of their customers. Providing them a steady network connection is the responsibility of the providers. Telstra in Australia is known for providing the best networks. However, recently there were network outage problem occurred (Nicholls 2016). The company has fixed the problem but this hampered their good will. The company should take the matter seriously and ensure a stable connectivity to regain its fame.

In order to compete with Telstra Optus should improve its quality of services. Offering low price is not enough to ensure a large share in the market. In telecom industry customers values quality services more than low price. High quality optic fibers should be used to provide an uninterrupted service.

Conclusion

The article that has been evaluated gives a clear indication about formation of a duopoly structure in telecommunication industry in Australia. If this happens, then this industry will be the third one having a duopoly structure, next after Australian supermarkets and airline business. The monopoly phase of Telstra is moving to an end with faster growth of Singtel- Optus. Both the companies are trying to improve their service to attract more customers. They are leaving behind other big players like Vodafone, TPG telecom and others. Still Optus needs some improvement in its service quality to fully compete or replace Telstra

References

Dunne, T., Klimek, S.D., Roberts, M.J. and Xu, D.Y., 2013. Entry, exit, and the determinants of market structure. The RAND Journal of Economics, 44(3), pp.462-487.

Frank, R., 2014. Microeconomics and behavior. McGraw-Hill Higher Education.

Howell, B., 2014. Structural Separation and Technological Diffusion.

Nicholls, R., 2016. The Australian telecommunications regulatory environment. Australian Journal of Telecommunications and the Digital Economy, 4(4), p.196.

Optus chief predicts telecommunications duopoly with Telstra. [online] The Sydney Morning Herald. Available at: [Accessed 10 Aug. 2017].

‘Telstra, you are an absolute joke’. [online] Available at: [Accessed 10 Aug. 2017].

Waldman, D. and Jensen, E., 2016. Industrial organization: theory and practice. Routledge.

Williams, J., 2016. Economic insights on market structure and competition. Addiction, 111(12), pp.2094-2095.

How to cite this essay: