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Choose an Australian industry and analyse the most important factors affecting i...
Apr 25, 2024
Choose an Australian industry and analyse the most important factors affecting its
profitability by using the relevant concepts and theories we have studied in Lectures 1-8 (or
from future lecture topics if you like). You should choose the three or four most-important
factors influencing profitability. You can choose factors that are currently affecting your
chosen industry, or factors that seem likely to affect the industry’s profitability in the near
future. Some possibilities to consider are:
• Internal rivalry and the market structure: Which market structure best describes the
market (i.e. perfect competition, monopoly etc.)? Why? Things to consider here are the
nature of the firms’ output (homogenous vs. heterogeneous), barriers to entry, “pricetaking” vs. “price-making,” and market concentration (a small number of large firms vs. a
large number of small firms). Provide measures of industry concentration if you can. Do
you have reasons to believe that the market structure is likely to change in the future? Is
the struggle for market share and increased profitability reflected mainly in price
competition or in non-price competition? If it is non-price competition, what form does
it take?
• Barriers to entry: Are there barriers to entry in your chosen industry? That is, is it
difficult for new firms to enter or is there free entry? Have any significant new firms
entered the industry in the recent past? Consider how brand loyalty, economies of scale,
intellectual-property law (e.g. patents and copyrights), and government regulation can
each contribute to barriers to entry.
• Substitutes and complements: Are there important substitutes and complements (in
consumption) that could affect industry profits? You can consider related products that
are either currently available or might soon become available.
• Bargaining power of buyers: Is the input of your chosen industry bought by few large
buyers with market power or a multitude of price-taking buyers with no market power?
How does that affect profits? Have producers made relationship-specific investments
with their buyers?
• Bargaining power of suppliers: Is the market for inputs in your chosen industry
concentrated or competitive? Here, you can choose to consider the markets for labour,
land, raw materials, and capital. How does the relative concentration in that market
affect input costs, and how can input costs affect your chosen industry’s profits? Have
the producers in your chosen industry made relationship-specific investments with their
input suppliers (for example, moving their factory close to a supplier’s business)? Can
the supplier exploit this situation and how would that affect profitability? Are there
substitute inputs that producers in your chosen industry can turn to?
• Costs: What sort of cost structures do the firms in the industry face? Do the firms face
any economies/diseconomies of scale, scope, and/or learning? How are these cost
structures likely to affect firms’ relative sizes or their profit-maximising decisions?
2
• Technological change: Have there been significant technological changes affecting
profitability in the recent past, or are any such changes likely in the future?
• Government policy: How does government policy affect the industry? Are there likely to
be changes in government policy in the future that may affect the profitability of the
industry?
• Price discrimination: Do firms in your industry engage in price discrimination? If so, how
do they do it, and what enables them to be able to price discriminate successfully? What
type of price discrimination is it? How important is price discrimination for profits? If
price discrimination is currently impossible but was possible in the recent past (or will be
possible in the future), discuss how these (expected) changes affect profitability.
• Elasticity of supply/demand: The determination of whether supply and/or demand are
relatively elastic or inelastic would often be important when considering the other
factors listed above. Still, if you believe that certain factors can change the elasticity of
supply or demand in your industry leading to changes in profitability, feel free to discuss
them separately.
• COVID-19: Has COVID-19 benefited or hurt the industry’s profitability in the short run,
and why? Is that effect likely to last even after the pandemic has been brought under
control? Is the industry likely to undergo long-term changes as a result of the pandemic?
What do COVID-19’s effects on the industry tell you about its structure?
The above list is not exhaustive. If you think there are other significant microeconomic
factors, feel free to analyse them. Remember that you do not need to discuss all of the
above points. Your case study also does not need to answer every single question within a
given category. It is enough to discuss the 3-4 factors that you consider to be the most
important for your chosen industry.
The library's Industry Information databases can be an excellent source of information and
assistance in your research and can be accessed here. Some of the databases indexed there
include “Porter’s five forces analysis” (PFFA) of Australian industries. Note that we are NOT
asking you to perform a five forces analysis! Assignments that follow the five forces
framework will lose marks as that framework is not a good fit for this case study’s prompt.
To summarise, in this case study you should:
• Introduce and define the industry that you will analyse;
• Briefly describe the first factor you will study and analyse it to determine how it affects
the industry’s profitability. Where possible, provide evidence;
• Perform the same steps with the second factor you are considering;
• Perform the same steps with the third and fourth factors you are considering (if there is
a fourth one);
• Provide any concluding remarks;
3
• Add a bibliography, collecting all references cited in the text. (Use the 7
th
-edition
American Psychological Association style, also known as APA 7th citation style. Our
library’s excellent citation guide is here.)
The main factors considered in marking will be:
a) Research: For example, does the essay display sound and extensive research of the
industry chosen?
b) Knowledge of economic concepts: Has the essay used the appropriate economic
concepts? Does the essay show a thorough understanding of those concepts?
c) Quality of the analysis and application of economic concepts: Is there a logical and
thorough supporting argument or description of how conclusions have been drawn?
Have economic concepts been applied in an effective manner? Are the assumptions
clearly described? Is an understanding shown of any relevant qualifications to the
conclusion?
d) Presentation: Has the industry been properly defined and identified? Are the writing
style and organisation of material such that the main ideas and arguments can be
understood? Note that diagrams are often useful for illustrating key economic
models and concepts.
Remember, we are looking for sound applications of the key economic concepts that have
been taught in the subject.
Answer
The profitability of the Australian telecommunications industry is significantly influenced by market structure, barriers to entry, technological change, and government policy.
Solution
a
Market Structure: The Australian telecommunications industry is best described as an oligopoly, characterized by a small number of large firms, such as Telstra, Optus, and Vodafone, which dominate the market. The nature of the output is heterogeneous with firms offering a variety of services and packages. The market has high barriers to entry due to the significant capital investment required and the established brand loyalty of existing firms
b
Barriers to Entry: High barriers to entry protect the existing firms' profits by limiting competition. These barriers include the high cost of network infrastructure, regulatory requirements, and the strong brand identities of incumbent firms
c
Technological Change: Rapid technological advancements, such as the rollout of 5G networks, significantly affect the industry's profitability. Firms that can quickly adopt and integrate new technologies can gain a competitive advantage, potentially increasing their market share and profits
d
Government Policy: Government policies, including regulations on spectrum allocation and consumer protection laws, have a substantial impact on the industry. Changes in these policies can alter the competitive landscape and profitability by affecting operational costs and the level of competition
Key Concept
Oligopoly and barriers to entry are critical in understanding the profitability of the Australian telecommunications industry.
Explanation
The oligopolistic market structure allows for some degree of price-making ability, while high barriers to entry protect existing firms from new competitors, both of which help maintain profitability. Technological change can disrupt this by altering the competitive dynamics and requiring significant investment, while government policy can either bolster or undermine the established market power of incumbent firms.
could you use telecommuncations industry this topic writing 1000 words and include the requirments
A
Key Concept
Market Structure
Explanation
The telecommunications industry can be analyzed through the lens of market structure, focusing on how the number and size of firms, the nature of the product, and the degree of market power influence competition and pricing.
could you write more
Answer
The profitability of the Australian telecommunications industry is influenced by market structure, barriers to entry, technological change, and government policy.
Solution
a
Market Structure: The Australian telecommunications industry is characterized by an oligopolistic market structure, which means a few large firms dominate the market. This structure impacts profitability through pricing power and strategic interactions among firms
b
Barriers to Entry: High barriers to entry, such as the need for substantial capital investment and access to technology, protect established firms from new competitors, affecting industry profitability by limiting competition
c
Technological Change: Rapid technological advancements can alter the competitive landscape by enabling new services and changing cost structures, thus influencing profitability through innovation and efficiency gains
d
Government Policy: Regulations, subsidies, and policies regarding competition and consumer protection can significantly impact profitability by influencing market dynamics and operational costs
Key Concept
Market Structure
Explanation
The oligopolistic nature of the Australian telecommunications industry allows for pricing power and strategic interactions that can lead to higher profitability for the dominant firms.
Key Concept
Barriers to Entry
Explanation
High capital requirements and technological expertise needed to compete in the telecommunications industry create significant barriers to entry, protecting established firms and maintaining their profitability.
Key Concept
Technological Change
Explanation
Technological advancements drive competition and efficiency within the industry, which can lead to new revenue streams and cost savings, thereby affecting profitability.
Key Concept
Government Policy
Explanation
Government interventions through regulations and policies can shape the competitive environment and cost structures of firms in the telecommunications industry, influencing their profitability.
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