Managerial Economics - Netflix Inc.

Running Head: Managerial Economics
NETFLIC INC.
Managerial Economics

Managerial Economics
Netflix started in 1997. Reed Hastings is heading the company as Chief Operating Officer. It
has its presence around 190 countries. Earlier, it started by renting DVD’s of old movies
through mail without any late return charges. In 1999, the company came into subscription
service and now it streams a library of TV series, movies, documentaries etc. (Netflix, n.d.).
Netflix is also into Video on Demand services wherein contents are accessible on any internet
connected device like laptop, smartphones, desktop etc.
Netflix operates in oligopoly market because it is a paid online video streaming service and
there exist only few competitors. Also, barrier to entry is very high in this market because it
requires large capital and IT expertise to handle sufficient database. Along with this, it would
be difficult for new firms to achieve economies of scale in this market (Taylor’s University,
n.d.).
Market power is also known as pricing power. In 2017, Netflix raised the subscription prices
of two streaming plans out of three by one dollar and 2 dollars. It did not affect the revenues
adversely. Rather, after the price increase there was a significant rise in the new global
subscribers which stood at 8.33 million that year (The Motley Fool, 2018). This shows the
pricing power of Netflix. Recently when it raised the subscription prices, there was a decline
in the newly added subscribers of Netflix which stood at 2.83 million and expected number
was 4.8 million (Reuters, 2019). This shows that Netflix pricing power has somewhat
declined in the recent years which may be a result of increased competition after 2017. Since,
it operates in an oligopolistic market it enjoys more power over the market as compared to
other markets where threat of entry and exit are high.
The key competitors of Netflix include Amazon, Android Market, blockbuster, Hulu, iTunes
etc. (Weebly, n.d.). Out of other streaming companies, around 52% of American population
prefer Netflix and its one-fifth goes for Netflix subscription alone. At present, Netflix has the
biggest fear from Disney because it is coming with its own video streaming segment and
would no longer provide its content to Netflix. No doubt, just the brand Disney attracts
millions and billions of traffic towards itself but now when Disney would have its own
streaming segment the whole traffic may divert towards it. Amazon prime cannot be a threat
for Netflix because half of the subscribed users of Netflix have also got Amazon Prime
(Forbes, 2017). In DVD’s by mail segment, Netflix is having competition with Blockbuster
who is also providing the customers with the facility of returning DVD at the stores of
Blockbuster (Weebly, n.d.).
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