Case study of Market structure on the basis of Bangladesh perspective.

Course title:
Managerial Economics Course code: MGT 5302 Chapter: 9 & 10
Prepared by:

Md. Arifuzzaman Matric No: R121151 Program: RMBA Semester: Spring-2012 Section: IV

Submitted to Md. Monir Ahmed Assistant professor DBA, IIUC Submission Date: 19th April 2012.

Department of Business Administration Faculty of Business Studies International Islamic University Chittagong.
Prepare by: Md. Arifuzzaman, Matric no: R121151 International Islamic University Chittagong

Market Structures:
Markets dier from each other based on three important criteria: (i) the number of rms in a market; (ii) the ease of entry into and exit from the market; and (iii) the ability of rms to dierentiate their products and hence exercise some control over price. We have already talked about perfect competition (a large number of small, identical rms selling an identical product) and monopoly (one single seller of a product for which there is no close substitute). In this chapter we will talk about oligopoly and monopolistic competition.

In economics, markets are classified according to the structure of the industry serving the market. Industry structure is categorized on the basis of market structure variables which are believed to determine the extent and characteristics of competition. Those variables which have received the most attention are number of buyers and sellers, extent of product substitutability, costs, ease of entry and exit, and the extent of mutual interdependence [Baumol, 1982; Colton, 1993]. In the traditional framework, these structural variables are distilled into the following taxonomy of market structures:

(1) Perfect Competition--many sellers of a standardized product, (2) Monopolistic Competition--many sellers of a differentiated product, (3) Oligopoly--few sellers of a standardized or a differentiated product, and (4) Monopoly--a single seller of a product for which there is no close substitute.

These four market structures each represent an abstract (generic) characterization of a type of real market. Market structure is important in that it affects market outcomes through its impact on the motivations, opportunities and decisions of economic actors participating in the market. The goal of economic market structure analysis is to isolate these effects in an attempt to explain and predict market outcomes [McNulty 1968; Broaddus, 1991]. MSA is concerned with the effects of competition upon economic behavior. It attempts to explain and predict market outcomes through the extent of market competition.

Perfect competition:
A perfectly competitive industry is highly unlikely to exist in its entirety given the strong assumptions made about the operation of the market. All markets are competitive to one degree or another, but the vast majority of markets are characterised as imperfectly competitive. We do, though get closer to perfect competition in many markets for agricultural and other primary commodities. These are the only markets where there are enough sellers of products that are near perfect substitutes for each other.

Prepare by: Md. Arifuzzaman, Matric no: R121151 International Islamic University Chittagong

Bangladesh Credit Card: Essential Considerations

An individual should consider the following points while applying for a Bangladesh credit card:

Universal acceptance: Look for a credit card that is globally acceptable. International credit cards are particularly important for people who travel frequently to foreign countries, such as businessmen, sportspersons, political figures and celebrities. There are no extra charges for owning an international credit card. Rewards program: Most credit card issuers offer a range of reward programs, such as air miles, cash back and shopping bonuses. Analyze your purchasing habits and then select an appropriate rewards program. Annual fees: Look for a credit card with no annual fees. Mostly, standard and gold credit cards do not attract an annual fee, unlike their premier versions. Interest rates: Research the market thoroughly for lower interest rates. Remember, most banks write their annual percentage rate (APR) in per month figures.

In 2009, the Bangladeshi government withdrew the source tax applicable on credit card usage. According to expert opinion, this step will provide an essential thrust to foreign investment in the financial sector and will promote credit card transactions in the nation as well. A case study is an intensive analysis of an individual unit (e.g., a person, group, or event) stressing developmental factors in relation to context. [1] The case study is common in social sciences and life sciences. Case studies may be descriptive or explanatory. The latter type is used to explore causation in order to find underlying principles. [2][3] They may be prospective (in which criteria are established and cases fitting the criteria are included as they become available) or retrospective (in which criteria are established for selecting cases from historical records for inclusion in the study). Thomas[4] offers the following definition of case study: "Case studies are analyses of persons, events, decisions, periods, projects, policies, institutions, or other systems that are studied holistically by one or more methods. The case that is the subject of the inquiry will be an instance of a class of phenomena that provides an analytical frame an object within which the study is conducted and which the case illuminates and explicates." Rather than using samples and following a rigid protocol (strict set of rules) to examine limited number of variables, case study methods involve an in-depth, longitudinal (over a long period of time) examination of a single instance or event: a case. They provide a systematic way of looking at events, collecting data, analyzing information, and reporting the results. As a result the researcher may gain a sharpened understanding of why the instance happened as it did, and what might become important to look at more extensively in future research. Case studies lend themselves to both generating and testing hypotheses.[5]
Prepare by: Md. Arifuzzaman, Matric no: R121151 International Islamic University Chittagong

Another suggestion is that case study should be defined as a research strategy, an empirical inquiry that investigates a phenomenon within its real-life context. Case study research can mean single and multiple case studies, can include quantitative evidence, relies on multiple sources of evidence, and benefits from the prior development of theoretical propositions. Case studies should not be confused with qualitative research and they can be based on any mix of quantitative and qualitative evidence. Single-subject research provides the statistical framework for making inferences from quantitative casestudy data.[3][6] This is also supported and well-formulated in (Lamnek, 2005): "The case study is a research approach, situated between concrete data taking techniques and methodologic paradigms."

Monopolistic Competition
Monopolistic competition is a form of imperfect competition where many competing producers sell products that are differentiated from one another (that is, the products are substitutes, but, with differences such as branding, are not exactly alike). In monopolistic competition firms can behave like monopolies in the short-run, including using market power to generate profit. In the long-run, other firms enter the market and the benefits of differentiation decrease with competition; the market becomes more like perfect competition where firms cannot gain economic profit. However, in reality, if consumer rationality/innovativeness is low and heuristics is preferred, monopolistic competition can fall into natural monopoly, at the complete absence of government intervention.[1] At the presence of coercive government, monopolistic competition will fall into governmentgranted monopoly. Unlike perfect competition, the firm maintains spare capacity. Models of monopolistic competition areoften used to model industries. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. The "founding father" of the theory of monopolistic competition was Edward Hastings Chamberlin in his pioneering book on the subject Theory of Monopolistic Competition (1933).[2] Joan Robinson also receives credit as an early pioneer on the concept. Monopolistic competition

Short-run equilibrium of the firm under monopolistic competition. The firm maximizes its profits and produces a quantity where the firm's marginal revenue (MR) is equal to its marginal cost (MC). The firm is able to collect a price based on the average revenue (AR) curve. The difference between the firms average revenue and average cost,
Prepare by: Md. Arifuzzaman, Matric no: R121151 International Islamic University Chittagong

multiplied by the quantity sold (Qs), gives the total profit Long-run equilibrium of the firm under monopolistic competition. The firm still produces where marginal cost and marginal revenue are equal; however, the demand curve (and AR) has shifted as other firms entered the market and increased competition. The firm no longer sells its goods above average cost and can no longer claim an economic profit Monopolistically competitive markets have the following characteristics: * There are many producers and many consumers in a given market, and no business has total control over the market price. * Consumers perceive that there are non-price differences among the competitors' products. * There are few barriers to entry and exit.[3] * Producers have a degree of control over price. The long-run characteristics of a monopolistically competitive market are almost the same as in perfect...

RMG Sectors monopolistic Business in Bangladesh

In the 1950s labor in the western world became highly organized; forming trade union. This and other change provided the workers greater rights including higher pay. Developing economy like Hong Kong, Taiwan, South Korea presented themselves as good destination for their discipline labor forces and high quality product in right time and could produce the best product at a low cost. so the other country made the organization (MFA) Multi Fabrics Agreement in 1974..and in 1980 Bangladesh received free training from Korean Daewoo Company .after that Bangladesh started to their own business in a large sense as a result it become a large contributing area in economy. Bangladesh has emerged as an important supplier of quality readymade garments in The global market. The spectacular growth of garment sector in Bangladesh in recent years has dramatically changed the landscape of export composition of the country. Once heavily dependent on exports of primary products lead by Jute, the economy of Bangladesh is now experiencing almost 76% export contribution from readymade garments (RMG). The sector has now occupied an important place in Bangladesh national economy. Nevertheless, all is not well in this sector. It faces numerous challenges and it is now on the crossroad with the phasing out of quota system, GSP facilities and new provisions of WTO. In this
Prepare by: Md. Arifuzzaman, Matric no: R121151 International Islamic University Chittagong

study attempts have been made to find out the ways to face the competitive business environment by the efficient management process towards the lead-time reduction. Bangladesh is one of the leading readymade garments exporters in the global market. The Changing global environment in business and the development of GATT into WTO raises many important questions regarding increase in export in the Textile and garment sector for a developing country like Bangladesh. To survive in this sector Bangladesh must take immediate pragmatic policies enabling itself to compete more efficiently in the changing business environment through minimization of lead time. In the beginning of 1990s, the lead-time was 120-150 days (Azad, 2004) but in 2007, it was reduced to 30-50 days, i.e. at present it is 90-100 days (Khan, 2007). China requires only 30 days Due to their textile and other backward linkage facilities as well as export friendly management and supporting policy. It is 45-60 days in India and Pakistan (Nuruzzaman, 2008). To compete successfully in the fiercely competitive post-MFA global free trade market, the manufacturers must be adequately equipped with the latest knowledge of scientific management in minimizing lead time and other management deficiencies (Nuruzzaman, 2007).

Oligopoly:
An oligopoly is a market with few rms selling products that may be di erentiated. An oligopoly is a price setter (like a monopoly) and ability of new rms to enter is usually limited, though not completely barred. The prex Oligo- means few. An example of an oligopolistic market is the automobile market in the U.S. or the telecom industry in Bangladesh. To understand how rms operate in an oligopolistic market, we have to use some knowledge about a branch of economics called strategy and game theory. Unlike a monopoly or a competitive rm, an oligopolistic rm considers how its actions aect its rivals and how its rivals actions aect it; each rm forms a strategy. A strategy is a battle plan or a plan of action that each rm will use to compete against the other rm in this oligopolistic market. In the models we will study here, strategies usually involve setting prices and/or quantities. We think of oligopolies as players competing with each other in a game a game is a compe-tition or contest between players where strategic behavior plays a key role. Game theory is a set of tools that economists, political scientists and military
Prepare by: Md. Arifuzzaman, Matric no: R121151 International Islamic University Chittagong

analysts use to analyze these game scenarios. A set of strategies is a Nash equilibrium if, holding the strategies of all other players (or rms) constant, no player (or rm) can obtain a higher payo (or prot) by
choosing a dierent strategy. In the Nash equilibrium, no rm wants to change its strategy because each
rm is using its best response the strategy that maximizes its payo s, given its beliefs about other

players strategies.

Competition in Mobile Telecommunication Industry in Bangladesh

As mentioned it earlier that GrameenPhone is the market leader with approximately 63% market share From the market share and technical capability point of view, GP is clearly ahead of other competitors. Although Aktel was the challenger but its activities was not so much threat for GP. Since the market payers designed their strategy with traditional armors therefore, the culture and practice of innovation was not appropriately nurtured in this industry. Aktel tried to be innovative and to provide unique value to the bcustomers but it could not be effectively successful as GP responded immediately in bunconstructive ways. Even sometimes in a very negative way (e.g. network jamming, price cut and so on), which was to some extent unethical, too. For example, when Aktel planned to provide augmented service to customers, GP would create an unannounced barrier in case of calling and messaging from Aktel to GP subscribers to create an impression that Aktels network is not as efficient as GP. Ultimately, the innovative efforts of Aktel were not fully successful. The company (GP) used to enjoy almost a monopoly until and unless the threat was created by other competitors.

The influence of mobile telecommunication is multi faceted. It has become an indispensable part of urban life. Certainly nowadays mobile telecommunication services serve not only for traditional communication purposes but also as a new channel for existing entertainment and new types of entertainment (Kornak, et al., 2004). The uneven competition in the telecommunication service industry of Bangladesh is working as barrier in providing this type of value adding services to the customers. The adverse consequences, in addition to network jamming and sudden price cut, are various call rates for similar service, problem in internet connectivity, failure to make mobile phone as a means for entertainment whereas these are very common and familiar all over the world. The service providers of this industry are now fighting for the existing customers in the same market instead of developing new
Prepare by: Md. Arifuzzaman, Matric no: R121151 International Islamic University Chittagong

market and new innovative products. The overall competency and capability of this industry is not enhancing due to the lack of adequate research and development for innovativeness. No company is growing with a proper potential to challenge the market leader. Ultimately, customers are being deprived. Here the point to be noted that the mobile call charge in Bangladesh is one of the highest in the world.This is because of the monopolistic competition in this industry

Monopoly
A monopoly is exclusive control of the market by one business because there is no other group selling the product or offering the service. A true monopoly rarely exists because if there is no competition, business will increase the price while reducing output to increase profits. Antitrust laws keep this type of market condition from existing. A natural monopoly exists where having more than one supplier is inefficient, like in public utilities, but these are regulated by the government. Not only does a monopoly cause higher prices; it can also lead to inferior products and services.

BTTBs Monopoly Business in Bangladesh

The GSM Association (GSMA) points out that the Bangladesh government protects the BTTB's monopoly over international phone call business. In a report, released Thursday, it says foreign investors are least interested to inject fund in the country's telecoms sector due to BTTB's monopoly in the international gateway. Bangladesh Telegraph and Telephone Board also overcharges international phone calls, which has eroded the Bangladeshi private sector's competitive edge in the global market, said the London-based global trade body. "For Bangladesh-based businesses, competing in the global market, the cost of communicating is substantially higher, putting them at a competitive disadvantage," GSMA said Thursday. GSMA is a grouping of more than 700 GSM mobile phone operators from 217 countries. It said telecoms investment in Bangladesh, as a percentage of gross domestic product (GDP), is 70 percent lower. According to a GSMA study titled "Gateway Liberalisation: Stimulating Economic Growth", the country's international call tariff is two to three times higher than the average for developing countries said The GSMA study blames BTTB's monopoly in the international call business for such a bad shape of Bangladesh telecoms market. It says the introduction of competition into the international gateways market can reduce call
Prepare by: Md. Arifuzzaman, Matric no: R121151 International Islamic University Chittagong

prices by up to 90 percent and double call volumes. Kenyan mobile operator Safaricom, for example, received an international gateways licence in 2006 and was able to cut international call prices by 70 percent. Similarly, the price of international calls from Nigeria has fallen by more than 90 percent since liberalisation. "But this study shows that as many as 70 countries have yet to recognize the importance of competition in this vital gateway to international markets. In a mobile-centric world, and particularly in developing economies, monopolies throttle development and add significant costs," said GSMA's regulatory head, Tom Phillips. "Since countries first began to introduce competition into the international gateways market more than 20 years ago, the trend has gathered pace and the benefits to consumers, business and governments in an increasingly global economy, are now beyond doubt," Phillips said. The GSMA's study found that the old arguments used to sustain international gateway monopolies are simply no longer valid because, whether competition is outlawed or not, new technologies, such as VoIP and VSATs, can bypass the monopoly, and can account for up to 60 percent of international call volumes, even though use of such technologies is often illegal. "The incumbent international gateway monopoly business model is past its sell-by date; governments should liberalise this market immediately and all stakeholders will benefit," Phillips said. Consumers enjoy more reliable and cheaper services after the introduction of competition, according to the study. It says the economy benefits from increased investment, job creation and export-led growth. By contrast, monopolies hold markets back, the study said citing Bangladesh as one of the bad examples

Reference:
Internet searching. www.wikipedia.com www.google.com A book of managerial Economics written by W. Cris. Lewis And Class lecture of Md. Monir Ahed (assistant Professor,DBA,IIUC)
Prepare by: Md. Arifuzzaman, Matric no: R121151 International Islamic University Chittagong