Regulatory Impact on Telecom Market Competition

True/ False/ Depends

Question 1

False. Under typical circumstances, which is to say, if government regulators were not involved, we might expect for the industry to coalesce around one dominant competitor; however, as it is, there are anti-trust statutes preventing such a merger, and therefore it is likely there remain a few major competitors in the space who consume 80-90% of the market share with the remaining share going to a few minor competitors for whom the major players are legally required to provide network bandwidth. Also, there is some differentiation of product, e.g. CDMA vs GSM, that allows for the development of two networks within the market and increases switching costs for the customer, such that they are relatively sticky

This would be an effective strategy for deterring another airline from entering the route, but would likely be very bad for margins as in order for it to be effective the airline would need to drop its prices such that they were somewhat balanced with supply and demand. If the airline were to simply run the routes with the excess capacity, it would have the double-disadvantage of carrying higher costs on the route and still demanding a premium price from consumers, thereby inviting entrant competitors. A more effective measure would be to communicate a price match as above in Question 3, but this, however, is not without its limitations as it assumes all entrants are rational competitors, and, as we’ve seen over the years, this is empirically untrue in the airline industry; entering firms cannot help but think they will be able to manage their way out of bad industry dynamics to eke out a profit in this space, perhaps owing to the perennial managerial shortcoming of overconfidence bias, to tie in a concept from other

While the reduced transportation costs are undoubtedly good for the company’s cost structure and therefore its competitive standing in the market, building a coal-fired power plant next to its primary coal supplier effectively grants that supplier a monopoly over its raw material contracts. A better strategy may perhaps be to locate near multiple abundant sources of coal suppliers where there are few coal-fired power plants currently and where there are expected to be few in the future (due to environmental or geographic constraints, etc.), or to enter into a long-term joint-venture (with strong dissolution penalty measures) with the primary coal supplier before building the plant, or to enter into a long-term fixed contract over the price of future coal supply. Separately, the company could attempt to hedge against the future price of coal on the open marketplace; but this is subject to significant difficulties as if the company is not part of some larger conglomerate, it may not have the resources to develop the expertise required to compete effectively in this area, and, even if it were, it may not be wise to do so anyway. Another solution still is potentially to acquire the coal supplier. This is subject to a number of core competency issues as is the hedging strategy, but may altogether be worth pursuing if the dynamics of the market lend themselves to such