A Case Study on the GSM Mobile Handsets Industry in India to analyze the practical implication implication of the Theory of Oligopoly INTO!"CTION 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 arket 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. "n Oligopoly #ndustry usually exhibits the following features$ • • • •
Few larger supplier dominates the market %ach firm produces similar or differentiated products Significant barriers to entry #nterdependence between firms
The primal focus of this case study thus is to analy&e how and what all are the factors which showcase the Oligopolistic nature of the 'S mobile #ndustry in #ndia. #n order to do so, we have ac(uired industry data and presented it with relation to various market structure determination deter mination tools such as )oncentration *atio, Typical Typical +emand curve and arriers to %ntry among others.
A#O"T GSM MO#I$% HAN!S%T IN!"ST& IN IN!IA obile handsets industry has witnessed tremendous growth in the last few years thanks to the periodic introduction of new features, multimedia tools and technology advancements. obiles have a come a long way, from a mere calling device to a smart device that does everything for an individual right from making calls to browsing the internet. #t has now become a necessary commodity and has become an intrinsic part of one-s lifestyle. )urrently, this industry is dominated by large players and these players en/oy the maximum market share. These top players contribute to more than 012 of the total handsets sales in #ndia. The industry is alluring many new players into the market which is eventually giving consumers even more options to choose from.
arket is divided basis different price segments, and all the players produce many different products in low3end segment to the high3end to luxury phones, but products produced by different manufacturers are close substitutes for each other. This industry is highly3price sensitive at low3end segment and gets more feature driven as it moves from mid end to high3end segment phones. Firms play on price at low3end segment and non3price determinants at mid and high3 end segment to fight competition. arket is determined by the extra features! valued added services provided by the competition Few of the a/or arket Players that exist in the market are$ 4. 6. 7. 8. . ;. <.
5okia Samsung Sony %ricsson 9' F9: Spice Others =>T), "pple, otorola etc. ?
"s me move forward in the case, we will analy&e the different aspects of oligopoly industry in respect to the 'S obile >andset #ndustry in #ndia. "s mentioned earlier, this industry is dominated by few large players and these top players en/oy the maximum share. "s per the ay, 611@ report of 'FA =a knowledge based organi&ation that works in the field of collection of data on mobile handsets, telecom service providers etc.? 5okia dominates the market with <4.2 share followed by the Samsung at the 6 nd position, 9' at the 7 rd place and Sony %ricsson at the 8th position. "s per the 'FA report of arch to ay 611@, market share =no. of Bnits? of different players in the industry are as follows$ Total Mar'ets Share (in "nits)* #AN! Mar+,Apr+,May+,NO.IA /-012 1,0/2 13042 SAMS"NG 3,012 3,0-2 33052 $G 40/2 4062 4062 SON& %ICSSON 5052 6072 60,2 MOTOO$A 3052 3062 30,2 8$& 3062 30/2 3092 S:IC% 3062 3062 3092 ;O!A8ON% 9042 90,2 9092 OTH%S 6062 6062 6032 Table 3< MA.%T SHA% 8O ;AIO"S GSM MAN"8ACT"%S
8igure 3< MA.%T SHA% 8O ;AIO"S GSM MAN"8ACT"%S
.IN.%! !%MAN! C";% The kinked3demand curve is a demand curve comprised of two segments, one that is relatively more elastic, which results if a firm increases its price, and the other that is inelastic, which results if a firm decreases its price. These two segments are /oined at a corner or Ckink.C >owever, #n the case of the 'S handset #ndustry in #ndia, there can never be a condition where a firm #ncreases its prices for its models once it has been launched in the market. Dhen a firm reduces its prices, competition follows making demand to be inelastic. +ue to the competition reaction to price fall, there is price stickiness and thus the firms rely on non price determinants to boost sales, revenue E profit. Thus, for a kink to occur, the firms would have to compete based on Non-Price Determinants in order to increase sales. #n the figure given below, the firm-s original demand curve is bound to be elastic as is shown by the demand curve +4-.
8igure 9< .IN.%! !%MAN! C";% IN GSM HAN!S%T IN!"ST&
"t point ", there is a change in the demand curve as is shown by the demand curve +6- due to non price determinant factors. "t this point, the original elastic demand curve now proceeds as an in3elastic one. #n the 'S >andset industry, there are primarily 6 5on Price determinants$ •
Consumer Scheme$ These Schemes are targeted directly at the end customers
to create pull. %=amples$ 'et a luetooth Free with Samsung obile. •
Trade Scheme$ Schemes are targeted at the *etailers and +ealers. %xtra
margins and special offer on the purchase. Percentage based scheme, more the value of purchase, better the offer. %=ample$ Samsung monthly scheme, buy Samsung handsets, earn points and get a >onda Ga&&, points are based on value of handset purchased =Sept, 611@ scheme?.
NON :IC% COM:%TITION The 'S mobile industry, universally, thrives on 5on Price competition to set its products apart from each other and to compete with its competitors. They can-t 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. >igh competition leads to huge non price competition, which involves #nnovative customer focused Features like$ •
5ew window based phones by >T)
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Dalkman series by Sony %ricsson
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"nti3theft feature by Samsung
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'raphical interface of #3phone Dater proof phones by Samsung E Sony %ricsson.
Consumer Scheme< Schemes targeted at end customer to create pull. 9ure them to their product by offering them attractive schemes. For %g$ 'et a T3shirt free on purchase of handset Channel Scheme$ Firms keep up the sales by providing discounts to associated trade partners as follows$ •
argins E benefits given to ma/or stake holders i.e. distributors E retailers.
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*egular monthly schemes, special schemes on festivals, #P9 etc.
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This help firms to push stock at the retail counters and tie them for a specific period of time
In+Shop demonstration $ Dorking +emo sample of >andsets for showcase. %g$ Sony %ricsson 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. $oyalty :rograms< 9ong term point based schemes are provided to the retailers to ensure that they continue relationship with the firm. These schemes provide direct benefits, which are linked to the sales, and indirect benefits, to keep the relationship healthy, to the retailers. %=ample$ Sony %ricsson Super 9eague Program for its top 11 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. 8or instance$ firms pay up to *s 71,111 for a 46x46 wall unit. These rates vary from high visibility to low visibility outlets. Ad>ertising Campaigns play an important role in creating rand awareness and promote sales. )elebrity endorsement is another popular advertising strategy employed to create rand 5iche. %=ample 3 "mir Ahan endorsing Samsung obile.
Strong and %fficient After sales ser>ice is also a big alluring factor for the customers when purchasing mobile handsets.
CO$$"SION IN TH% IN!"ST& obile handset is high competition industry where firms keep an eagle-s eye to competitors every action and react as and when re(uired. >aving said that, one single firm i.e. 5okia still en/oys the maximum share and en/oys <12 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. "lso, another important evidence lies in the fact that there are a lot of 5ew companies are foraying in this industry. These new companies are from varying financial backings, from new entrants such as icromax to others which are backed by bigger corporate such as Onida. There are almost more than 41 companies who are making an entry in this industry in coming ; months to a year.
Thus it can be concluded that there are no virtual- barriers to entry in this #ndustry.
%?IST%NC% O8 A :IC% $%A!% IN TH% IN!"ST& 5okia, owing to its phenomenal market share, is also the price leader in the market, particularly in the 9ow3end segment =H *s 111?. This segment is the most price sensitive segment. 5okia, fully reali&ing this, thus offers a great variety of models to choose from in this segment. Owing to its popularity in this segment other competitors are forced to align their pricing strategies to match that of 5okia. Thus 5okia becomes the price leader for this segment. #n the case of id3end =*s. 11134111? E >igh3end =I *s. 4111? segments, it is not necessarily the case as this segment is a highly feature driven one. The firm that gives maximum features in minimum price or the firm that gives uni(ue features gets the maximum attention and thus the highest sales. "nother reason why there is no market leader in this range is that these products are not perfect substitutes to each other.
%?IST%NC% O8 S":%NOMA$ :O8ITS ased 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 E mid3 end segments handsets. #n fact a few firms are even selling low3end phones at the actual cost of the handset. #n high3end segments firms tend to earn extra profits but not abnormal!supernormal. "lso, high3end share to the total sales is very low. This compensates the low margins on low3end 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. •
oto ra&or, otorola-s most popular handset ever, was sold at the same price for 6 consecutive years, which is a big thing in the 'S handset industry where manufacturers are forced to reduce prices regularly to keep the sales clock ticking.
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5okia 0011 =sirocco? E Jertu are limited edition phones which 5okia 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.
#AI%S TO %NT& The 'S >andset industry being a reasonably high Technology based industry might seem to be >igh arriers to entry industry as it re(uires considerable initial
investment to begin with. >owever, that is not exactly the case. The barriers that exist in the industry are$ •
>igh 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 )hina, Aorea etc.
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+istribution network =phones without #%# numbers are prohibited?
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Technology is not a barrier any more as cheap Technological alternatives are readily available in the arket.
There are about 41K companies that are foraying into this industry, few of which are listed below$ •
)arbon
•
icro max
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Jideocon
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Onida
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9arr
Thus it can be concluded that the arriers to entry in this #ndustry are not very high.
INT%!%:%N!%NC% %?IST%NC% Since the 'S >andset 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. %=ample< Sony %ricsson dropped the price of D<1 from *s. 4;,@@ to 47,@@, and same was followed by 5okia which dropped the price of its model 011 from *s. 4;,11 to 47,11.
Firms also try to match up to the margins E schemes given by the competitors to retailers. %=ample< Samsung sometime back had launched a foreign trip scheme for their retailer which was then also implemented by 9' in their sales incentives.
CONC$"SION y virtue of the case study and analysis discussed above on the 'S obile >andset #ndustry in #ndia, it is (uite evident that current 'S obile >andset #ndustry is a perfect example of Oligopoly arket structure. There is high competition amongst firms. Firms adapt different and innovative strategies to survive and to earn maximum profits and revenue. The competition factor also encourages them to produce (uality goods and services. This also drives them to become innovative and more customer3oriented. 9ower priced basic functional phones enable the company to gain market share and revenue from the lower income groups. Though, it is a high capital investment industry, but it-s not very tough for an already established company with a stable distribution network to foray in this market. This can also be proved from the fact that few new players like icromax etc. have already made an entry into this market and few others like Jideocon, Onida are on their way of making an entry. Dith new players coming in, market dynamics is likely to change mainly in the low3 end segment and demand can become more inelastic impacting the market share of the top firms. 5okia who en/oys the <12 share can be impacted by the new entrants mainly in the low3end segment. Others like Samsung, Sony %ricsson etc. will be hit harder. "lthough there is currently no evidence of collusion in the industryL but going by the increasing number of new entrants, particularly in the low3end segment, a possibility of collusion by the big37, in order to preserve their market share in this segment, cannot be ruled out.
#I#$OGA:H& 'iven below is a list of sources which were utili&ed in this case study. =4? obile handset sales data from 3 'FA Survey-s website a knowledge based organi&ation that works in the field of collection of data on mobile handsets, telecom service providers etc. =6? #nformation collected from Sony %ricsson obile )ommunications #ndia and 5okia #ndia websites. (3) Magazines: Business world & My Mobile.
