It has been some time since many contestants in telecom had to worry about the effects of ruinous levels of competition, which were obvious and widespread in parts of the telecom market very early in the 21st century.
Sometimes markets endure what might be termed excessive or ruinous competition, where no company is a sector is profitable.
That arguably is the case for India, where industry revenues dropped seven percent last year, following years of such results, leading regulators to consider instituting minimum prices as a way of boosting profits.
Such situations are not new, as early developments in the railroad industry suggest. In fact, sometimes competitors might price in predatory fashion, deliberately selling below cost in an effort to drive other competitors out of business. That sort of behavior often is prohibited by law, and can trigger antitrust action.
Even if technology has changed network costs and economics, allowing sustained competition between firms of equal size, the unanswered question for competitive markets has been the possible outcomes of ruinous levels of competition.
Stable market structures often have market shares that are quite unequal, which prevents firms from launching ruinous pricing attacks.
A ratio of 2:1 in market share between any two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for either competitor to increase or decrease share.
A market with three roughly equally-situated contestants means there always will be a temptation to launch disruptive attacks, especially if one of the three has such a strategy already.
Some studies suggest a stable market of three firms features a market share pattern of approximately 4:2:1, where each contestant has double the market share of the following contestant.
The hypothetical stable market structure is one where market shares are unequal enough, and the leader financially strong enough, to whether any disruptive attack by the number two or number three providers. That oligopolistic structure is stable, yet arguably provides competitive benefits.
In a classic oligopolistic market, one might expect to see an “ideal” (normative) structure something like:
As a theoretical rule, one might argue, an oligopolistic market with three leading providers will tend to be stable when market shares follow a general pattern of 40 percent, 30 percent, 20 percent market shares held by three contestants.
Another unanswered question is the minimum possible competitive market structure, where consumer benefits still are obtained but firms also can sustain themselves. Regulators have grappled with the answer largely in terms of the minimum number of viable competitors in mobile markets, the widespread thinking being that only a single facilities-based fixed network operator is possible in many countries.
In a minority of countries, it has seemed possible for at least two fixed network suppliers to operate at scale, on a sustainable basis.
The point is that, long-term, sustainable competition in the facilities-based parts of the telecom business is likely to take an oligopolistic shape over the long term, and that is likely the best outcome, providing sustainable competition and consumer benefits, without ruinous levels of competition.
No comments:
Post a Comment