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Introduction

Oligopolistic industry market is the field of market that has only few firms that runs the
specific business. The firms dominate and share the market structure. Thus, it is highly
concentrated. However, some small firms may still operate but is might be difficult to
compete with the big firms in this oligopolistic market field. Concentration ratios used by the
economist to determine whether the market is oligopoly or not. Concentration ratios measure
the proportion of total market share held by a given number of firms operate in the business.
The key characteristics of firms that operate in close competition that build up the
oligopolistic market are the firms are interdependent, highly strategic business plan and high
barriers to enter the market. The firm in this market have to make decision based on the
potential reaction of other firms in this oligopolistic market. Therefore, they cannot act
independently of each other. Next, in order to survive in oligopolistic market, the firms in this
market should have a very good strategy in running the business. The firms need to plan and
lay out a range of possible options according to other firms might react in this market.
Besides that, oligopoly has barriers of entry in order to maintain their position of dominance
in the market. This is due to the high cost or difficult for potential rivals to enter the
oligopolistic market.
The article chosen is titled Malaysia Telecommunication Industry Outlook which is
about the oligopolistic market in telecommunication industry in Malaysia. The article shows
the revenue received from the telecommunication sector. This article also analyse each firms
that involved in the telecommunication industry that is considered as oligopolistic market
industry in Malaysia. From this article, oligopolistic market is shown in a very detailed
analysis done by Taurus Brown. The comparison between each firms and the revenue
received by each firms reflects the oligopoly characteristics that has been mentioned. This
article also shown the detailed analysis on mobile internet and data plan provided by the
firms to the consumer. However, the analysis will be covered only for the basic
telecommunication revenue or considered as revenue from mobile voice. Mobile voice has
been a status quo and the largest part in generating revenue for telecommunication firms. In
term of communication and multimedia industry, the article shows that telecommunication
contributes the highest revenue. (Figure 1)

Figure 1: Communication and Multimedia Revenue 2014

Analysis
All telecommunication firms offer the same services. Although it is the same, the price may
vary but still in the close range of pricing. The packaging and marketing of products must be
creative in order to look appeal to the targeted market as Maxis and Celcom have done. Even
though the price of each product from all telecommunication firms may have slight
difference, it is still in the range of price that is considered as oligopoly market price.
The homogenous services provided by the telecommunication firms across the
industry without regulated pricing have created a market that is highly price-sensitive. It
means that the changes in price will affect heavily in the quantity demanded from the market
as it is oligopolistic market. The consumer might change to other service provider if the price
increased. The demand curve in oligopolistic market will be inelastic as only few firms that
provide the service. The demand for each individual firm may vary as the consumer is
switching between these few firms. The graph below shows the inelastic demand curve in
oligopolistic market. (Graph 1)

Graph 1: Inelastic Demand Curve of Oligopolistic Market

Based on a survey conducted by Malaysian Communication and Multimedia


Commission (MCMC) in 2014 regarding the loyalty of the telecommunication service
consumer towards their service provider, it is found that 90% of users stay loyal to their
service provider for at least a year and not switching to other service providers in the market.
Other 10% of the consumer in telecommunication service switched telecommunication
service provider within a year. Of that 10% consumer that switched telecommunication
service, 60.7% of the users switched because of cheaper rates and packages. The statistics is
shown in Figure 2.

Figure 2: Percentage of Reason in Switching Telco Service Provider

Based on Figure 2, it is found that pricing plays a significant factor for a consumer
stays loyal towards the telecommunication service provider. A slight increase in price may
reduce the quantity demanded of the telecommunication service for each individual firm.
Therefore, a rise in price made by a firm will not be followed by the competitors as it may
lead to a fall in quantity demanded which is greater that the increase in price.

Graph 2: Kinked Demand Curve


Graph 2 shows the kinked demand curve for oligopolistic market. The kinked demand
curve is faced by oligopolistic firms because the rival firms will not follow the firm if the
price of telecommunication products is increased. However, the reduction in price made by
an oligopolistic firm will be followed by its competitors in the industry. This is to avoid
losing their customer as oligopolistic market consumer can switch to other providers
(inelastic demand). For example, if Digi reduces its price of the service they provide, Celcom
and RedOne might follow its step in reducing the price of their service too. This is due to the
fall in price might cause a slight increase in the quantity demanded of telecommunication
service products.

Graph 3: Kinked Demand Curve in Rival Oligopolistic Firms


As observed in Graph 3, each firm strategizes against each other. The strategy of each
firm is based on whether to ignore price increase of other telecommunication firm or
matching the decrease in price of telecommunication service provided. There is two partial
demand curves and each part has a marginal revenue part. The price and output are optimized
at the kink resulting in a kinked demand curves. The kinked demand curve for oligopolistic
telecommunication market is explaining the complexities of oligopolistic prices as a natural
outcome of non-collusive behaviour.

Collusive pricing is done by the telecommunication firms in oligopolistic market in


order to achieve joint-profit maximization. Other than that, it is to prevent price and revenue
instability in the telecommunication industry. Based on the article, telecommunication market
remains relatively stable revenue received. The revenue in 2014 shows increase of 1.24% to
RM 45.96 billion with TM contributes the highest part in revenue gaining at 24.5% followed
by Axiata with 23.9% and Maxis follows behind with 18.3%. Collusive pricing represents the
attempt by telecommunication providers to manipulate supply and fix the price at a level
closer to monopoly market. In order to fix the price, the firms have to exert control over the
supply in oligopolistic market.

Graph 4: Collusive Pricing Graph of Oligopolistic Market


Based on Graph 4, the price and quantity is fixed at price P m and Qm respectively by
the telecommunication providers. The allocation of the distribution in output level might be
based on an output quota system or by negotiation process made by telecommunication
providers in this oligopolistic market. The graph shown is resulted by assuming the collective
telecommunication firms made up a single monopoly firm as if all the firms have identical
cost, demand and marginal revenue in oligopoly.
In conclusion, oligopolistic firms are the price maker in the industry. All the firms in
telecommunication industry in Malaysia have advantages as there are just a few competitors
in the field. Besides that, telecommunication firms in Malaysia do not have to worry about
new competitors and just can concentrate in leaping the rivals that already in the field as
oligopoly market have high barriers to entry. Lastly, all the firms in telecommunication
industry have to make a good strategic marketing in order to survive in this oligopolistic
market.