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Running head: MANAGERIAL ECONOMICSManagerial EconomicsName of the Student:Name of the University:Author note:
MANAGERIAL ECONOMICS1Case 1: Predatory RoamingAnswer 1The market for mobile network roaming is a collusive oligopoly market. An oligopolymarket is characterized by few sellers, many buyers and very slightly differentiated products(Varian 2014). In the mobile network market in the European Economic Area (EEA), there arefew network providers and huge number of consumers. The product and the service areundifferentiated. The sellers have formed collusion. If one provider raises its rates, others wouldfollow the suit. Under collusive oligopoly, the firms form a group, called Cartel, to affect theentire market (Feng, Li and Li 2013). The price is set higher than the market equilibrium pricefor profit maximization. Few large companies capture the market; hence, market concentrationcreates barriers to entry for a new firm. The higher rates of roaming services also possess abarrier. Along with that, as the service providers are large, they can exploit the economies ofscale. The brand recognition also creates barriers to entry. Hence, the operators take theadvantage of cartel and determine the market price at such a rate, which is not profitable for anew operator (Ciliberto and Williams 2014).Answer 2In this particular case, the operators find it quite easy to exploit the consumers. Firstly,only few large operators have the whole market share, and among them, only a single operatorhas got the 50% share of the market. There is lack of competition, as new operators cannot enterthe market for higher levels of barriers to entry (Gomez-Martinez, Onderstal and Sonnemans2016). These operators have formed collusive oligopoly market structure and the consumers are
MANAGERIAL ECONOMICS2left with no other cheaper choice. Secondly, lack of information among the consumers regardingthe roaming charges has helped in exploitation by the operators. Very few consumers know theactual charge they pay for roaming. Even fewer people choose different network for roaming.The consumers do not choose their network based on the roaming charges. Thus, the lack ofcheaper networks and lack of knowledge and awareness of the consumers about the roamingcharges have made exploitation easy.Answer 3The commission wants to make the choice easier for the customers. Hence, it wants theoperators to reduce their roaming charges. However, as the mobile network market is collusiveoligopoly, the operators have set the roaming rates quite higher to exploit the customers (Alonziand Condon 2015). They have no incentive to compete over the roaming charges, as there is nocompetition. As the customers are mostly not aware about the exact amount they are paying forroaming, the operators would not have any desire to cut down the rates. The commission realizedthat if given a choice, the consumers would prefer the call-back service due to lower receivingrates and higher calling rates. If this service is implemented as a mandatory service, then theoperators would be under pressure to reduce their roaming rates. This is due to the reason that, ifreceiving increases than calling during roaming, then less revenue would be generated. However,only if the commission takes such an action, the operators would be forced to reduce theirroaming rates.
MANAGERIAL ECONOMICS3Part ACase 1Answer (a)Business cycle refers to the upward and downward movement of the production levelaround the long term growth in an economy. A business cycle consists of four distinguishedphases, namely, expansion, peak or boom, contraction or recession and trough or depression(Schumpeter 2017).Figure1:Phasesof BusinessCycle(Source:Hansen2013)Expansion:Whenthe economyisgrowing andGDP isincreasing.Thegrowth rate is usually 2-3%, unemployment is at the natural range of 4.5-5%, inflation is at 2%and stocks are in the bull market.Peak: It comes when the growth rate becomes more than 3%, inflation crosses 2% and due toirrational exuberance of the investors, asset bubble is created.