A Case Study on the GSM Mobile Handsets Industry in

India to analyze the practical implication of the Theory of

Oligopoly
INTRODUCTION
Oligopoly is an intermediate form of imperfect competition in which only a Few
sellers exist in the market with each offering a product similar or identical to the other
one.
Since there are only few players, each player keeps a close tab on the activity of
others and is aware of the action of the others. Thus a lot of the strategic decisions
made by rival companies are often made keeping the competitors in mind.
Strategic Planning in an Oligopoly Market structure always involves taking into
account the likely responses of the other market participants. This causes oligopolistic
markets and industries to be at the highest risk for collusion.
Oligopolistic firms often get into a friendly competition where they compete on
factors/services other than Price alone. An Oligopoly Industry usually exhibits the
following features:

Few larger supplier dominates the market

Each firm produces similar or differentiated products
Significant barriers to entry
Interdependence between firms

The primal focus of this case study thus is to analyze how and what all are the factors
which showcase the Oligopolistic nature of the GSM mobile Industry in India. In
order to do so, we have acquired industry data and presented it with relation to various
market structure determination tools such as Concentration Ratio, Typical Demand
curve and Barriers to Entry among others.

ABOUT GSM MOBILE HANDSET INDUSTRY IN INDIA

Mobile handsets industry has witnessed tremendous growth in the last few years
thanks to the periodic introduction of new features, multimedia tools and technology
advancements.
Mobiles have a come a long way, from a mere calling device to a smart device that
does everything for an individual right from making calls to browsing the internet. It
has now become a necessary commodity and has become an intrinsic part of ones
lifestyle.
Currently, this industry is dominated by 5 large players and these players enjoy the
maximum market share. These top 5 players contribute to more than 80% of the total
handsets sales in India. The industry is alluring many new players into the market
which is eventually giving consumers even more options to choose from.

Market is divided basis different price segments, and all the players produce many
different products in low-end segment to the high-end to luxury phones, but products
produced by different manufacturers are close substitutes for each other. This industry
is highly-price sensitive at low-end segment and gets more feature driven as it moves
from mid end to high-end segment phones.
Firms play on price at low-end segment and non-price determinants at mid and highend segment to fight competition. Market is determined by the extra features/ valued
added services provided by the competition
Few of the Major Market Players that exist in the market are:
1.
2.
3.
4.
5.
6.
7.

Nokia
Samsung
Sony Ericsson
LG
FLY
Spice
Others (HTC, Apple, Motorola etc. )

As me move forward in the case, we will analyze the different aspects of oligopoly
industry in respect to the GSM Mobile Handset Industry in India.
As mentioned earlier, this industry is dominated by few large players and these top 5
players enjoy the maximum share. As per the May, 2009 report of GFK (a knowledge
based organization that works in the field of collection of data on mobile handsets,
telecom service providers etc.) Nokia dominates the market with 71.5% share
followed by the Samsung at the 2nd position, LG at the 3rd place and Sony Ericsson at
the 4th position.
As per the GFK report of March to May 2009, market share (no. of Units) of different
players in the industry are as follows:
Total Markets Share (in Units)*
BRAND
Mar-09
Apr-09
May-09
NOKIA
69.7%
70.6%
71.5%
SAMSUNG
10.7%
10.9%
11.4%
LG
5.6%
5.3%
5.3%
SONY ERICSSON
4.4%
3.8%
3.0%
MOTOROLA
1.4%
1.3%
1.0%
FLY
1.3%
1.6%
1.2%
SPICE
1.3%
1.3%
1.2%
VODAFONE
2.5%
2.0%
2.2%
OTHERS
3.3%
3.3%
3.1%
Table 1: MARKET SHARE FOR VARIOUS GSM MANUFACTURERS

Figure 1: MARKET SHARE FOR VARIOUS GSM MANUFACTURERS

KINKED DEMAND CURVE

The kinked-demand curve is a demand curve comprised of two segments, one that is
relatively more elastic, which results if a firm increases its price, and the other that is
inelastic, which results if a firm decreases its price. These two segments are joined at
a corner or "kink." However, In the case of the GSM handset Industry in India, there
can never be a condition where a firm Increases its prices for its models once it has
been launched in the market. When a firm reduces its prices, competition follows
making demand to be inelastic. Due to the competition reaction to price fall, there is
price stickiness and thus the firms rely on non price determinants to boost sales,
revenue & profit. Thus, for a kink to occur, the firms would have to compete based
on Non-Price Determinants in order to increase sales.
In the figure given below, the firms original demand curve is bound to be elastic as is
shown by the demand curve D1.

Figure 2: KINKED DEMAND CURVE IN GSM HANDSET INDUSTRY

At point A, there is a change in the demand curve as is shown by the demand curve
D2 due to non price determinant factors. At this point, the original elastic demand
curve now proceeds as an in-elastic one.
In the GSM Handset industry, there are primarily 2 Non Price determinants:

Consumer Scheme: These Schemes are targeted directly at the end customers
to create pull.
Examples: Get a Bluetooth Free with Samsung Mobile.

Trade Scheme: Schemes are targeted at the Retailers and Dealers. Extra
margins and special offer on the purchase. Percentage based scheme, more the
value of purchase, better the offer.
Example: Samsung monthly scheme, buy Samsung handsets, earn points and
get a Honda Jazz, points are based on value of handset purchased (Sept, 2009
scheme).

NON PRICE COMPETITION

The GSM mobile industry, universally, thrives on Non Price competition to set its
products apart from each other and to compete with its competitors. They cant
survive only on price, as competitive firms match the prices making demand inelastic
towards the end of the curve. So it gets imperative for them to compete on factors
other than price alone, to survive in the market.
High competition leads to huge non price competition, which involves Innovative
customer focused Features like:

New window based phones by HTC

Walkman series by Sony Ericsson

Anti-theft feature by Samsung

Graphical interface of I-phone Water proof phones by Samsung & Sony

Ericsson.

Consumer Scheme: Schemes targeted at end customer to create pull. Lure them to
their product by offering them attractive schemes. For Eg: Get a T-shirt free on
purchase of handset
Channel Scheme: Firms keep up the sales by providing discounts to associated trade
partners as follows:

Margins & benefits given to major stake holders i.e. distributors & retailers.

Regular monthly schemes, special schemes on festivals, IPL etc.

This help firms to push stock at the retail counters and tie them for a specific
period of time

In-Shop demonstration: Working Demo sample of Handsets for showcase. Eg:

Sony Ericsson Store provides working samples for all their handsets to provide first
hand product experience to the customers. Firms also deploy their sales
representatives at various retail outlets to push their product over the competition.
Loyalty Programs: Long term point based schemes are provided to the retailers to
ensure that they continue relationship with the firm. These schemes provide direct
benefits, which are linked to the sales, and indirect benefits, to keep the relationship
healthy, to the retailers.
Example: Sony Ericsson Super League Program for its top 500 retailers.
Strong Merchandising tactic are employed to ensure visibility at shop front to get
customers attention. Firms pay money to the shop owners to ensure that their brands
are visible.
For instance: firms pay up to Rs 30,000 for a 12x12 wall unit. These rates vary from
high visibility to low visibility outlets.
Advertising Campaigns play an important role in creating Brand awareness and
promote sales. Celebrity endorsement is another popular advertising strategy
employed to create Brand Niche.
Example - Amir Khan endorsing Samsung Mobile.
Strong and Efficient After sales service is also a big alluring factor for the customers
when purchasing mobile handsets.

COLLUSION IN THE INDUSTRY

Mobile handset is high competition industry where firms keep an eagles eye to
competitors every action and react as and when required.
Having said that, one single firm i.e. Nokia still enjoys the maximum share and enjoys
70% of total market share. Thus, it can safely be concluded there is no need for it to
get into an under the table agreement with any other firm. This is the primary
evidence to the fact that there is no collusion in the market.
Also, another important evidence lies in the fact that there are a lot of New companies
are foraying in this industry. These new companies are from varying financial
backings, from new entrants such as Micromax to others which are backed by bigger
corporate such as Onida. There are almost more than 10 companies who are making
an entry in this industry in coming 6 months to a year.

Thus it can be concluded that there are no virtual barriers to entry in this Industry.

EXISTENCE OF A PRICE LEADER IN THE INDUSTRY

Nokia, owing to its phenomenal market share, is also the price leader in the market,
particularly in the Low-end segment (< Rs 5000). This segment is the most price
sensitive segment. Nokia, fully realizing this, thus offers a great variety of models to
choose from in this segment. Owing to its popularity in this segment other
competitors are forced to align their pricing strategies to match that of Nokia. Thus
Nokia becomes the price leader for this segment.
In the case of Mid-end (Rs. 5000-15000) & High-end (> Rs. 15000) segments, it is
not necessarily the case as this segment is a highly feature driven one. The firm that
gives maximum features in minimum price or the firm that gives unique features gets
the maximum attention and thus the highest sales. Another reason why there is no
market leader in this range is that these products are not perfect substitutes to each
other.

EXISTENCE OF SUPERNORMAL PROFITS

Based on the sales data available, there is no evidence of abnormal profits existing in
the industry. This is also because the firms earn very low margins on low end & midend segments handsets. In fact a few firms are even selling low-end phones at the
actual cost of the handset.
In high-end segments firms tend to earn extra profits but not abnormal/supernormal.
Also, high-end share to the total sales is very low. This compensates the low margins
on low-end and averages out the total profit earned by a firm.
There are, however, a few exceptions to this which arise when we consider certain
select handsets.

Moto razor, Motorolas most popular handset ever, was sold at the same price
for 2 consecutive years, which is a big thing in the GSM handset industry
where manufacturers are forced to reduce prices regularly to keep the sales
clock ticking.

Nokia 8800 (sirocco) & Vertu are limited edition phones which Nokia
produces. These are extremely expensive phones which do not follow the
popular trend in terms of sales purely because these are phones with high snob
value.

BARRIERS TO ENTRY
The GSM Handset industry being a reasonably high Technology based industry might
seem to be High Barriers to entry industry as it requires considerable initial

investment to begin with. However, that is not exactly the case. The barriers that exist
in the industry are:

High capital investment is a barrier only if a firm plans to manufacture the

phone by itself. Otherwise it is not a barrier these days as most of the new
companies that are foraying into this industry are importing phones from
China, Korea etc.

Distribution network (phones without IMEI numbers are prohibited)

Technology is not a barrier any more as cheap Technological alternatives are

readily available in the Market.

There are about 10+ companies that are foraying into this industry, few of which are
listed below:

Carbon

Micro max

Videocon

Onida

Larr

Thus it can be concluded that the Barriers to entry in this Industry are not very high.

INTERDEPENDENCE EXISTENCE
Since the GSM Handset industry is so competitive, it becomes imperative for Firms to
keep an eye on the activities of other competitors. This activity can vary from product
launch to retailer specific schemes.
Firms consider competitors reaction while dropping prices, in this industry phone
prices of almost similar products are dropped simultaneously in order to maintain the
sales ratios.
Example: Sony Ericsson dropped the price of W705 from Rs. 16,995 to 13,995, and
same was followed by Nokia which dropped the price of its model 5800 from Rs.
16,500 to 13,500.
Firms also try to match up to the margins & schemes given by the competitors to
retailers.
Example: Samsung sometime back had launched a foreign trip scheme for their
retailer which was then also implemented by LG in their sales incentives.

CONCLUSION
By virtue of the case study and analysis discussed above on the GSM Mobile Handset
Industry in India, it is quite evident that current GSM Mobile Handset Industry is a
perfect example of Oligopoly Market structure.
There is high competition amongst firms. Firms adapt different and innovative
strategies to survive and to earn maximum profits and revenue.
The competition factor also encourages them to produce quality goods and services.
This also drives them to become innovative and more customer-oriented. Lower
priced basic functional phones enable the company to gain market share and revenue
from the lower income groups.
Though, it is a high capital investment industry, but its not very tough for an already
established company with a stable distribution network to foray in this market. This
can also be proved from the fact that few new players like Micromax etc. have already
made an entry into this market and few others like Videocon, Onida are on their way
of making an entry.
With new players coming in, market dynamics is likely to change mainly in the lowend segment and demand can become more inelastic impacting the market share of
the top firms. Nokia who enjoys the 70% share can be impacted by the new entrants
mainly in the low-end segment. Others like Samsung, Sony Ericsson etc. will be hit
harder.
Although there is currently no evidence of collusion in the industry; but going by the
increasing number of new entrants, particularly in the low-end segment, a possibility
of collusion by the big-3, in order to preserve their market share in this segment,
cannot be ruled out.

BIBLOGRAPHY
Given below is a list of sources which were utilized in this case study.
(1) Mobile handset sales data from - GFK Surveys website a knowledge based
organization that works in the field of collection of data on mobile handsets,
telecom service providers etc.
(2) Information collected from Sony Ericsson Mobile Communications India and
Nokia India websites.
(3) Magazines: Business world & My Mobile.