Question

1. The Telecommunications Regulatory Authority (TRA) is the UAE’s independent industry regulator. Since its launch in 1976, Etisalat has held a monopoly in the market. That changed in 2006 with the emergence of du, which was awarded a 20-year concession to operate fixed-line, wireless, internet and international telecoms services. UAE-based telecom operator recently announced that it was launching Virgin Mobile as a new telecom brand within the country. Assuming the trend continues and the government opens the market for more private and foreign players. You are required to –
   1. Apply your understanding and concepts from microeconomics, to investigate and summarize the major characteristics of the emerging market form in the telecom industry.
   2. Describe and analyze the pricing policies that you would expect to find in this industry.
   3. Explain the profit maximization strategy of this market form with the help of a suitable graph.

Answer 1

As and when government liberalizes sector the monopolistic structure shall change to Oligopolistic structure if firms with equal size and market structure operate in long run and prices will rationalize. If more and more firms enter market this will shift to perfect competitive markets and prices shall hit rock bottom with wafer thin margins.

The consumers will be left with multiple low cost choices and eventually consumers will br acquired by firms which offer low cost high quality services. Over long run erosion of profits may take and will also results in mergers and acquisition and thus cost optimisation and revenues maximization will take place due to synergies observed.

Thus profit maximization takes place in monopolistic and Oligopolistic market structure.