Market Structure Analysis of Australian Video Entertainment Industry

This report provides a comprehensive analysis of the Australian video entertainment market, focusing on the transition from offline to online platforms. It begins by examining the market structure in the 1980s and 1990s, characterizing it as an oligopoly dominated by video rental stores and chains like Blockbuster and Video Ezy. The report then explores consumer preferences for both online and offline video entertainment and the impact of increased broadband availability on the decline of offline stores. The analysis delves into the shift in market structure from oligopoly to perfect competition, driven by the rise of online streaming services such as Netflix. The report highlights the challenges faced by offline video rental stores, including their inability to compete on price and the barriers to entry. Finally, it examines the current state of the online video entertainment market, characterized by perfect competition and the entry of numerous firms due to eliminated barriers. The report includes diagrams to illustrate market structures and equilibrium points, supported by relevant academic references.

Running head: AUSTRALIAN ONLINE AND OFFLINE VIDEO ENTERTAINMENT 1
Australian Online and Offline Video Entertainment
Name
Institution

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AUSTRALIAN ONLINE AND OFFLINE VIDEO ENTERTAINMENT
Question 1:
In this first question a consideration of market for `over-the-top’ video entertainment as
framed in 1990s and 1980s in Australia is made. The attention is paid to how they were
providing offline video entertainment originally via autonomous rental video stores, and later via
rental video chains like Blockbuster and Video Ezy. This consideration helps in the description
and definition of market structure in “over-the-top” market. From this is information the market
structure was oligopoly. This is a structure whereby a few firms dominate as evident in the above
background.
The market was only being shared between a few firms, and hence it was highly
concentrated. One key feature of oligopoly is that independence and this is affirmed by the
background above as there were independence video stores and rental video chains like Video
Ezy and Blockbuster. Another key feature that was observed in the 1980s and 1990s was that
only a few sellers existed in the market against the many buyers which further is an evidence that
this was indeed an oligopoly market structure (Neary, 2016). The other feature affirmed was that
the products had no close substitutes as only a few firms could offer them.

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The oligopoly market structure is illustrated by the above kinked demand curve. The
reactions of competitors to the change in price relies on whether the price is increased or
plunged. The elasticity of demand, and thus demand curve gradient, shall be different as well.
The demand curve is kinked, at the present price. Even in presence of a huge increase in MC,
price tends to stay fixed close to its initial position, provided high price elasticity of demand for
any price surge (Forrest, King & Delfabbro, 2016). The prices can thus be determined using such
strategies as predatory pricing, limit-pricing, collusion and cost-plus pricing.

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In the above diagram Oligopoly maximizes revenue at price at price P and quantuty Q.
The profits are maximized at P where MC=MR, and provided MC cuts MR in its vertical part,
then profit is stil at P. Where MC alters in vertical part of MR curve, price stil stays at P. Even
where MC moves outwards of vertical part, impact on price is minimal, and consumers will
never gain the benefit of any reduction in cost.
Question 2:
Consumers prefer to have both online and offline video entertainment for their
satisfaction. The consumers need to have purchase choices from both online and offline. The
online consumer can be driven to online programs and vice versa. There is a need to connect the
online and offline programs being relevance. Consumers need to enjoy both online and offline
services and hence they need to be connected by leveraging prevailing brand capital as well as
assets for powerful influence. The consumer no longer need the siloed and disjointed collaterals
and they need relevant, personalized campaign campaigns which permeate customers’ offline

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and online world through a synergized entertainment ecosystem. The consumers expect a fused
programs into a single magnetic entertainment experience.
The increased availability and affordability of broadband has killed the demand for
offline video entertainment. Indeed there will be no stores in the city areas within 2-3 years from
now as none will be franchised (Griffiths & McLean, 2017). Nothing stands in the way of
technology and hence offline stores have fallen victims and must aligns to online entertainment.
Many once-buzzling outlets in Melbourne’s inner-west have exited the market. They no longer
draw crowds like the Movie Reel video store of Rob Jones.
Also, Dave Nanfra’s Blockbuster franchise has closed down in Yarraville. My Movies in
North Melbourne and Video Dogs have also closed. The Video Ezy of the Blackburn South
remains a shadow of its former selves. The scale of online video industry has declined since
2008-10 with industry revenues dropping at the annualized 15.80% over 5 years through to last
trading period of 2013-14. The physical DVD sales was impacted by online sales by 5.6% in
2015. The technology thus vanished the need for physical tangible product that could be touched,
felt and absorbed. Other aspects of online video services like free downloads affected the
demand for offline video entertainment in Australia.
Question 3:
The market structure has changed from oligopoly to perfectly competitve market. And
with reduction in demand for offline entertainment, these firms must quite the market because
they will only make losses in the long run (Dunne, Klimek, Roberts & Xu, 2013). The streaming
of movies like Netflix has dealt the old stores a blow as the products are acquired online and
cheaper costs. The old stores cannot dictate the price but only become price takers. Therefore,
offline video rental stores have been closing down over the previous years. There are no longer

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barriers to entry enjoyed in the past and hence the old video stores can no longer maintain their
position of dominance as potential rivals now have no difficulty and too costly to bar entry.
The diagrm below illustates the losses that old offline stores will make in the short run
making them to leave the market:

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Question 4:
The market for online video entertainment is now perfectly competition structure. With
supply being an upward sloping, many firms have now gained entry into the Australian market
over the previous five years. This is because the barriers to entry have been eliminated. There are
now many sellers and buyers in the online market for video as shown below:

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From the above short run diagram, the price are price takers in the online market. The supply is
upward slopping as shown and the demand is downward slopping.

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The above diagram shows perfect competition short run equilibrium making supernormal
profits.

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References
Dunne, T., Klimek, S. D., Roberts, M. J., & Xu, D. Y. (2013). Entry, exit, and the determinants
of market structure. The RAND Journal of Economics, 44(3), 462-487.
Forrest, C. J., King, D. L., & Delfabbro, P. H. (2016). The gambling preferences and behaviors
of a community sample of Australian regular video game players. Journal of gambling
studies, 32(2), 409-420.
Griffiths, M. D., & McLean, L. (2017). Content Effects: Online and Offline Games. The
International Encyclopedia of Media Effects.
Neary, J. P. (2016). International trade in general oligopolistic equilibrium. Review of
International Economics, 24(4), 669-698.