Market Structures

Market Structures

The Microeconomic concept of Monopoly is one of great intrigue. The concept entails that the market power of one company or provider is in fact so strong that it dictates how the market operates. The price of that company is so influential that it is in fact that companies pricing that dictate how the others price their homogenous product.

An example of this very monopoly in Malaysia is Astro. Astro is a cable company, which provides internet for pretty much all of Malaysia’s households. They provide a service that is not only easily accessible, but it is priced very reasonably. What holds Astro apart is that they have provided a service to the Malaysian consumers that has never been provided before.  They took the risk and they let the Malaysian consumers watch international channels that they have never viewed before. In doing so, they captured the larger market share of the cable network.

The costing curve of a monopoly can be graphically shown below:

	Monopoly Costing

In the article that I have cited, it clearly illustrates Astro’s dominance on the cable television market. It states right in the beginning of the article how other vastly populated countries such as India and Indonesia, have more than 5 cable television network providers. This already illustrates the huge chunk of the market that Astro has already captured. Almost 28 million Malaysian consumers have chosen Astro over other cable networks.

This dominance in the cable television market must be brought into question.  What is startling first up is the pricing that Astro has adopted. The cheapest package they offer is for a mere RM64.61. This is a very low price to offer, especially since they offer a multitude of international channels.  The reason that the price is at a slumped rate is because the costs of production that the company has to undergo is much lesser then the costs that the other companies undergo. Not only are the barriers to entry high but the costs that will be for the monopoly will be lower than the costs that will be for someone else who enters the market. This is because of the economies of scale phenomenon, where things such as bulk buying reduce the company’s costs of production. This very fact reduces the price of the product for the consumers. Along with the price, Astro also includes 6 channels which are free to air. Some channels may be bought on box office.

Even though the barriers to entry into the cable television market are high, which essentially entails a very large capital investment; over the years there have been companies that have tried to shatter Astro’s dominance. Companies such as Al Hijrah Media Cooperation, Fine TV, UniFi, etc. have all tried to enter the market. As recent as 2012, a new company by the name of the Asian Broadcast Network, has also attempted to enter the market. They however, have recognised Astro’s dominance and have taken an original approach to revolutionise the industry. They have been famed before for using fibre optic cables, which essentially directs that their quality of channels will be of a higher quality then Astro has even offered. To top this off, they also claim to not only be cheaper than Astro, but they also say that they will offer up to 2000 channels.

The emergence of ABN has startled Astro. But to only ensure that they remain dominant in the market, it has been rumoured that they will decrease their prices by almost 50%, to ensure that they remain the only stagnant monopoly in the market. This can be achieved again, only because of the sheer low costs of production that they can achieve. The fact that they can push their prices down to that extent proves that they have been achieving supernormal profits. However, on ABN’s part, it is a massive risk to flirt with a monopoly power as they are not only influential in economic terms, but they are also very powerful in terms of the consumer loyalty that they have.

Another thing that must also be taken into consideration is that Astro may also choose to indulge in a cartel. In this format, Astro may choose to collude with ABN to form an even stronger monopoly power.  In this format also, Astro will have a colossal control over the market, and since they will be the stronger partner of the cartel they can have things more their own way. However, it is unlikely that Astro will do so as they already have a majority chunk of the market in their control.

Graphical representation of the demand curve after a collusion between Astro and ABN:

Kinked Demand Curve of collusion between Astro and ABN

In the article cited, it can be concluded that Astro is at its profit maximising point and are far away from their shutdown point. It can also be said that Astro is not exercising price discrimination, as they have definitely priced their good at a very reasonable rate.  And if Astro now invest more time and capital in their research and development, they will most definitely increase the quality of the product they offer. The fact of the matter remains that at this stage in time for the short run Astro is doing very well. They are not only providing a service that the consumers are very content with, but they are at a stage in their company’s future, where they are at a very profitable point. In the long run, things are looking good also, if the correct investment in capital and resources is made, Astro will not only prove to be a force in the cable network market, but may also choose to venture into other industries.

 http://www.consumer.org.my/index.php/development/private-sector/479-astros-monopoly-has-short-changed-malaysian-tv-viewers