Modern Evaluation of Sri Lankan Market Structures

Acknowledgment

I owe a deeper debt to my Lecture Dr. Ranjith Bandara. His Broad economic knowledge,
general enthusiasm and patient to go through all my questionnaires and clear explanations
he made are one of the major reasons for level of success of this assignment. He has
contributed not only on an intellectual level, however, but also a very encouraging
character through out the duration.

May thank to my family, because I could not have completed my thesis without their
support and encouragement.

I am also grateful to many of my colleagues at UOC and my business institution for their
encouragement and contributions, to make this happen.

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 Modern Evaluation of Sri Lankan Market Structures

Abstract

This attempt is on evaluating the changes of traditional market structures, particularly

with affect of the development of new information technology and with the expansion of
electronic-commerce. There is a widely accepted fact that use of new technological
advancements in the process of country development would bring uncountable
advantages. It is mainly focuses on observing this development within the context of Sri
Lanka. Rather, Information Technology has come to stay as it rightly used would bring
benefits like increasing market shares, enhancing quality, higher profits providers, low
marginal costs and network effects result in increasing return to scale, and thus the
emergence of monopolies. At the same time the internet cut costs, increases competition
and improves the functioning of the price mechanism. Modern technology has the ability
to simplify ongoing processes of development in today’s society, which in the ICT are
itself are explosive.

The paper shall endeavor to show the differences that exist between some of the textbook
models of market structure- and practically seen Economics, but shall also show that we
do not need to burn the old textbooks. Nevertheless there is an urgent need to rewrite
them, in a sense of refocusing by start of the new basic conditions of the Digital
Economy.

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Introduction
If there something called as ‘constant’ in the world, it is only ‘the change’ at all. Present
at Sri Lanka, the traditional market structure models also in the process of remarkable
change due to introduction of modern technology like rapidly growing Information and
Communication Technology, expansion of electronic-commerce and many more
advanced technologies.

With the introduction of open economy concept in country Market Structures has been
showing a rapid growth with the adaptation of the new technologies. The traditionally
talk of ‘Monopoly’, ‘Oligopoly’, ‘Perfect Competitive’, ‘Monopolistic Competitive’ etc..
concepts are really exist in the market according to book features are arguable.

Technological change (progress) increases the productivity of a nation’s factors of

production and shifts (to the right) the production possibility frontier. A factor saving
technological change, other things remaining the same, reduces the share of the factor in
total income and vise versa. Neutral technical progress increases the productivity of
factors by the same proportion.

Technological change in Sri Lankan Market Structures can have important economy-
wide implications for employment and returns to factors of production as well as
production and consumer behavior patterns. Through output market adjustments,
technical changes in markets, will affect the relative prices of goods and services not
directly affected by the new technology. These indirectly induced changes in product
markets can lead to further changes in factor markets. Thus this productivity changes can
affect foreign exchange earnings, food prices, domestic capital generation, labor use in
production, rural market development and relative factor prices
Furthermore, technological change generates a wide range of distributional effects related
to market size, it’s certain features, income, location, tenure situations etc. The purpose
of this study is to examine the impact of technological change in traditional market
structures in Sri Lanka.

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1. Revolution, Evolution & Hype

Before we start focusing especially on traditional market structure changes within context
of Sri Lankan Business Environment, I would like to examine the question of whether or
not with the development of modern technologies, particularly the new information and
Communication and technology and electronic-commerce are really bringing a new
reality or is it just another “blitz” in the history of human kind.

The Internet is often compared with the “Great inventions of the past” (Gordon 2000).
This concept originated from America due to their military activities. Behind this great
intervention there are many more and here at Sri Lanka, it is one of the key common
factor of change of present market structure from there traditional perspective. But in my
point of view, it is an open question whether the internet measures up to the economic
breakthrough of the steam engine, electricity, the internal combustion engine, chemical
pharmaceutical inventions or many more. There is a major debate as to the real impact of
ICT on productivity growth, particularly with Sri Lankan economy. Of cause, it is not
doubt that how the networking activities, Local Area Networks and Wide Area Activities
has successfully operated in the country to ease, reduce wastages & increase the
productivity of labor. But these advantages are not using by every citizen of Sri Lanka
due to lack of knowledge, switching cost, fear of moving out of the traditional methods,
poverty, some cultural values in some part of the country etc… So the how much of
change in traditional market structures may not be useful at all for ultimate goal of
developed Sri Lanka. So the advantages arisen may not be able to be used by every
citizen of Sri Lanka. Really speaking this so called changed can be observed most of the
times, (sometimes 75% - according to my assessment) only within Colombo district.
Under developed infrastructure facilities, low investment in rural cities etc… may affect
as reasons.

Sri Lankan economy drastically in a process of changing with adaptation of modern

technologies though its mainly centralized only within some part of the country.

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1.1 Performance.

Broadly speaking “what society wants from producers of goods and services is good
performance.” (F.M. Scherer; Industry Market Structure and Economic Performance,
1970).

In order to be able to analyze the performance, let us take a look as how people benefited
form current offerings and the way of which mechanism work.

As we can see, even only seven years after its commercialization, the internet invaded a
very wide range of industries in Sri Lanka as well. It seems applicable for performance
with very different features. Not only that, the use of interconnection of most of the
business organization may certainly help for people in their day today routine of works.

We shall focus on our attention on how the evaluation has happened and it’s key turning
points to be discussed.

1.1.1 Digital Vs. Non-digital goods.

First of all, we will have to draw attention to what were known as physical and non-
physical goods, goods and services in the traditional ‘bricks-and-mortar’ economy. Even
before the advent of the New Economy into our country, we have been able to observe
with increasing frequency, how goods and services were sold as an indivisible unit.
Services got incorporated to the sale of a good and often you could not say for sure it the
‘something’ you just purchased has been more good or more service. And in the end-it
did not make a difference anymore.

In the New Economy things get even more complicated. Here the frontiers melted down
to what we all “digital- or non digital” goods. To come to the point beforehand: we still
cannot really see clearly through their blurry distinguishing marks.

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Software, CDs, books, magazines, news broadcasts, stocks. Airline tickets, hotel rooms,
insurance policies, movies and the creation of a cyber stores… how to categorize them?

Firstly I should like to draw the attention to what I will refer to as the “additional value”
of the on-line shopping experience. To avoid confusion from the start: these additional
values count for digital, as well as for non-digital goods. They include all convenience
the new ICT is able to provide additionally, comparing an on-line purchase with it’s
offline counterpart. They are often not difficult to provide in e-commerce, but often they
are an extraordinary customer service. An example would be the intelligent software
agents, providing by Yahoo or Google, which help the Sri Lankan community for search
for a particular product. These agents save the consumer the time and effort he otherwise
would have to spent ‘visiting’ every single virtual shop or shopping mall. Other
additional values would be the given transparency, the greater freedom of priority choices
and the individualization of the on-line shopping experiences. All in al, these ‘additional
values’ save time and money and lead to a higher customer satisfaction.

- Non Digital Goods.

Actually now a days within Sri Lankan community there is a high demand in buying
goods and services through internet. This is mostly regarding some part of the county.
But there is a newly risen tendency. Allocating a hotel room, purchasing insurance
cover. (On-line system facility available institutions), placing order for certain books,
are now not a big deal via internet. Due to easiness and time consuming manners even
the slow moving items may began to show a high demand figure.

- Digital Goods.
In contrary to non –digital products, digital goods can bypass the transport and often
even the wholesale and retail network. They are non-rival and the difference between
a digital goods and retail network. They are non-rival and the difference between
digital and plain information is mainly excludability.

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Let take a look at the broadcasting-industry to visualize this story. Most of the people,
who are using internet, go online to get news and information. Every big newspaper
or magazine has a Web presence already and even Sirasa, Swarnawahini TV channels
as well and few other FM channels. Online news broadcasts combine the benefits of
TV news and newspapers. They are much more updated that their paper counterparts
and additionally give the reader the freedom to decide how much time he wants to
spend on which topic. So they create a distinct Product strategy and Advertising. So
these specific companies can be the market leaders and reduces of other various of
costs and more profits. Its like people may always tend to follow their channels even
not via on-line.

WE should not forget, that this simple online information system became the basis for
with what the majority of business executives, the investment and Financing sector
and generally everybody, who’s work depend on up-to-date broadcasts, are basing
their daily business.

As the some of the text books states, there are four main market structures namely,
Perfectly Competition, Monopoly, Monopolistic Competition, Oligopoly. We shall see
some evaluation on each.

1.1.2 Price Difference.

It is so important to look at the reason for price difference of the same commodity. If we
see the price of 1 kilos of beans at Cargills Super Market at your nearest is may be
Rs.100, but the same amount of beans can be purchased at your nearest retail just for
Rs.65. Due to factors of economies of scale, high fixed cost, labor, prestigious, use of
new technology at Cargills, it may cost that much, but your nearest retailer do not have to
bear that much of costs. So he is able to give to a lesser price than Cargills.

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1.1.3 Network Effect.

Network externalities are as important in new economic coherence. Actually to day every
bank is connected with their head office and branches them self. If person withdraw
money from a particular ATM machine of a bank, his account information will be
automatically updated in central database and it connects with every branch in all over
the country. This is only a just an example for understanding. So customers may really
happy due to the facility of withdrawing money from anywhere in the country.

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2. Discussion

It is worth looking how modern technology has been affected to traditional market
structures with some real life examples. One new feature in this process has been the
computers. Computers increased the ‘brain power’ of humankind tremendously. The
other new feature is the interconnectivity of these super brains on one hand, and the new
interconnectivity of people, on the other hand.

2.1 Adaptation of E-Commerce.

E-commerce may also be simply defined as the production, distribution, marketing, sale
or delivery of goods and services by electronic means. In its everyday application, e-
commerce goes beyond the sale of products on the Internet. A wide range of services are
now being directly supplied by companies to one another across the globe via the
Internet. The financial service industry is the most obvious example but the business of
online sales itself requires a range of services to support it such as Web site hosting,
authentication services, database design and management, among others.

Here at Sri Lanka, financial service industry has long been a user of data networks with
intranets and extranets ensuring electronic communication among banks and dealers. The
advent of e-commerce has spurred consumers and firms to use online banking and trading
financial securities. Every bank in Sri Lanka has on-line banking facilities like
transferring money from one account to another, viewing balance of account, paying bills
on-line, opening bank accounts via web etc… Not only that, but also most of the
insurance and leasing companies also has expanded their services via online. Purchasing
of insurances covers, leasing requisitions etc… These innovations in computer
technology, especially software development, are working in tandem with the rapid

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changes in telecommunications technology. They both have impacted on the organization

of business and are driven e-commerce.

The Internet and the Web have led to the re-creation of business models, the creation of
radically new business models. As some business organizations like romafour & ODEL
incorporate Internet technology into their core business processes, they have started to
achieve real business value through faster transactions and lower costs per transaction,
better decision-making as a result of more timely and accurate information, and
increased. www.odel.lk will allow you to shop online and add commodities for your
shopping cart.

In internet economics, the problem is not that entering the market, but to start making
business and to finally survive in the market. This is the real barrier of entry into the
virtual markets.

When its coming to online purchasing, there is a specific way of paying. Credit Cards,
Cheques, electronic cash, micropayments and smart cards etc…

2.1.1 Credit Cards

Credit Cards are by far the most common used ways of payment on the Internet which
used by not only among Sri Lankan community but also the world wide. Credit Card
payment systems are wide spread and it is commonly known how the plastic money is
working. The Internet is using specific security systems to grant the validity of the
proceeding. The leading standard is SET (Secure Electronic Transactions). As the of a
joint force of Visa and Master Cards, with the help of some secure intermediates like
Verisign. It is a collection of specifications that allow the realizing of transactions with
banking cards through the Web in a trustful and secure way

2.1.2 Smart Cards

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Smart Cards already became very familiar to daily business. They are used as public
phone cards or to recharge cellular (KIT, Mobitel, Hutch, and Tigo recharging cards
etc…)
2.2 Economies of scales

Like with almost everything, also the omnipresent economies of scale have to be
investigated as regards to the new light they are shining in. Economies of scale are the
only survival ticket through the internet jungle.

According to the price structure of digital products specially, meaning the minimization
of additional marginal cost such as product, transport, logistics and distribution costs.
Actually it seems like total cost has reduced due to modern technology, there is already
proof today that economies of scale have increased. For an example, many of the fixed
costs of online systems, such as staffing and software development and relatively
insensitive to the number of databases that are offered.

So it is non-argued that when we buy on-line why we have to pay something extra other
than we go and buy physically from that shop. (e.g ODEL online shopping line)

2.3 Price Discrimination

Can you remember the price of a 1 kilo of beans at your nearest small scale retailer and
the same commodity with the Cargills super market. Though it’s the same product and
same amount, there is a clear price difference. Cargills has invested more in their fixed
cost (building, technology, labor cost, electricity, rental etc.. ) but the retailer has no such
cost as such, So its no doubt why we can buy comparatively for lower price than

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3. Final Remarks.
As the facts of above discussed, this citation focused on creating a basic consciousness
about the new economic coherence, which have been provoked by the revolutionary
change in the traditional market structures in the context of Sri Lankan business
environment. By basing on methods of traditional Industrial Economics, we saw that the
old models are providing us with a stable framework when analyzing the new Age of
Economy. But we also saw that need of questioning almost every definition and
proportion of economic coherence which has been valid in frame work of traditional
market structure.

Actually Sri Lanka is a developing country and in a crucial situation in it’s history. We as
a nation have been faced not only by economic problems, but also a horrible war. So this
evolutionary change in traditional market structures is so important. But this should be
utilized in a manner that every citizen could get it’s maximum benefit. Though there are
some evolutionary changes due to the change of traditional market structures, this has not
been taken place widely when it is comparing with the other countries. I feel that we have
to go a long journey to achieve this.

As a nation we have to work more hardly to achieve this in a successful manner.

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References

About.com (2000), “Venture Capital: Propelling the New Economy”,

http://globalbusiness.about.com/money/globalbusiness/library/weekly/aa06 : 12/07/2008
1200a.htm

Gbde.org (2000), Global Business Dialogue on Electronic Commerce,

http://www.gbde.org.:08/07/2008

Hotwired.com (2000), “Encyclopedia of the New Economy”,

http://hotwired.lycos.com/special/ene/index.html?word=intro_one.:14/07/2008

“The Emerging Digital Economy 2” (1999), http://www.ecommerce.gov.:10/07/2008

http://www.google.lk/search?hl=en&q=Current+economic+trends+in+Sri+Lanka&meta=
: 18/07/2008

Blinder, Alan S. (2000), “Internet and the New Economy“; Jan2000.

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