Perfect competition Essay Example for Free

Perfect competitor EssayMonopoly and monopolistic emulations, staple fibre concepts monopoly representation a food commercialise situationin which there is b arely a single seller and full-gr consume no. of buyers. whereasmonopolistic arguingis a commercialise situation in which there is galactic no. of sellers and large no. of buyers. in monopolistic disputation, close substitutes be there in the sense that products are different in call of size, colour,packaging,brand,price etc. as in case of soap,toothpaste etc.but in monopoly, there is no close substitute of the good,if any, it testament be a remote substitute like in India, Indian railways has its monopoly but its remote substitutes are present like bus and air do. in monopolistic competition, there is aggressive advertising but in monopoly, there is no advertising at solely or a very little. in monopolistic competition, crave curve confront by the firm is much elastic because of avail world source of clos e substitutes. it means if a firm raises its price, it w rickety loose its large market share as customers in large will shift to close substitutes present in the market.But in monopoly, the engage curve faced by the firm is less elastic because of no close substitutes. if means if the firm raises its price, demand will not fall in a large quantity as it is only one in the market. u have to understand that the four different kinds, perfect, monopolistic, oligopoly, monopoly are on a spectrum with perfect and monopoly on the extremes, monopolistic is very similar to perfect, and monopoly is different that its a hard market to enter, because theres very few firms and require a big budget to get started. tone up the graphs for these competitions and you should have a transgress understanding MONOPOLY IN TELECOMMUNICATION . Competition in Telecommunications Services Experience has demonstrated that reposition and open competition benefits individual consumers and societies as a whole by ensuring get d give prices, earthy and better products and operate, and expanded consumer choice. The benefits of competition are readily seen in todays telecommunications sector. Dynamic technological change is resulting in new work and systems that brook advanced solutions to communications take across the globe.As a result, telecommunications is becoming increasingly important to the dexterity and effectiveness of offstage and public sector institutions. In this purlieu of rapid change, a free-enterprise(a) market place will tap the potential of the telecommunications sector to get along the economic and social well-being of all citizens.BENEFITS OF aspiration Free and open competition benefits individual consumers and the global community by ensuring trim back prices, new and better products and services, and greater consumer choice than occurs under monopoly reasons.In an open market, producers compete to win customers by lowering prices, developing new se rvices that best meet the needs of customers. A belligerent market promotes innovation by rewarding producers that invent, develop, and introduce new and innovative products and production processes. By doing so, the wealth of the society as a whole is increased. In a competitive environment, businesses that fail to understand and react to consumer needs face the loss of customers and declining profits.A insurance policy framework to establish, foster, and regulate competition is critical to the delivery of benefits expected and demanded by consumers. In opposite words, competition rewards entrepreneurship, responsiveness, and enthusiasm it punishes sluggishness and indifference. Because of the increasing importance of the telecommunications sector to the everyplaceall economy, countries rouse ill afford the sluggishness and indifference that so often characterize the provision of products and services under monopoly conditions.As developments in technology continue to produce cost-effective and exciting communications services, societies whitethorn be of importly disadvantaged if they forego the rewards of entrepreneurship and responsiveness associated with open, competitive telecommunications markets.POLICY GOALS TO ACHIEVE COMPETITIVE MARKETS In order to get to the benefits of competition described above, governments and regulators must establish an appropriate policy framework to govern the telecommunications sector. First, governments should remove legal barriers that protect existing monopoly providers from competition by new entrants.Second, policymakers should take affirmative steps to promote competition in sectors of the market that were previously closed to competition. Examples of these steps include adopting policies that abet multiple methods and modes of market intromission. Third, policymakers should study introducing competitive safeguards to protect against the exercise of market power by incumbent mail carriers during the transit ion to competition. The most fundamental of these competitive safeguards involves regulation of the terms and conditions governing link upion with the existing monopoly providers net.In the United States, although important steps were made to promote competition in the telecommunications sector prior to passage of the Telecommunications Act of 1996, the law unwaveringly established the intent to provide for a pro-competitive, deregulatory national policy framework designed to accelerate private sector deployment of advanced telecommunications and incourseation technologies and services to all Americans by opening all telecommunications markets to competition.EFFECTS OF rivalry IN THE TELECOMMUNICATION SECTORThe benefits of introducing competition in telecommunications markets are apparent in all segments of the telecommunications market. For instance, competition in the United States and many other countries in long distance and international telecommunications services has led to a dramatic decline in consumer rank for these services, as well as a dramatic increase in demand and a substantial increase in investment. International telecommunications services can be straggleicularly important to the development of a stable and robust economy linked to the global marketplace.The 1997 WTO Agreement on Basic Telecommunications Services ushered in a new era for telecommunications competition in many countries of the world. As part of that agreement, 72 countries have made commitments to open their telecommunications markets to foreign suppliers of basic telecommunications services. As these countries implement their commitments, dramatic change has occurred in their telecommunications markets. In many countries, there are several new providers of international and domestic telecommunications services, and prices are dramatically lower.As a result, increased competition has led to lower international settlement rates in many countries which, in turn, has led t o lower calling prices for consumers. dismantle calling prices means that raft can afford to make more calls, more often, creating closer ties between family and friends in different countries and strengthening business relationships. Thus, introducing competition in international telecommunications markets produces benefits through and throughout a coun stresss economy. In addition, as part of the WTO Agreement, 49 countries made commitments to open their satellite service markets.These commitments have helped increase the ability of global and regional satellite providers to obtain the requisite authorizations for their systems. Similarly, in many countries private investment and competition in the provision of terrestrial wireless telecommunications root has led to declining prices for, and widespread use of, wireless send for service. In areas where teledensity can increase, moreover, price reductions may expand the act of house posts that can afford service. This increase d demand may make build-out decisions more attractive.For example, in Chile, lower prices increased traffic by 260% from 1994 to 1997. In 1987, there were 6. 7 phones per 100 households in Chile this number rose to 11 in 1992 and to 15. 2 in 1996. As lower prices stimulate greater demand, an overall increase in revenues results despite superfluous providers in the market. In the U. S. long distance market, lower prices, in combination with an expanding market for services, have offset revenue loss from price reductions and the decrease in market share.For example, while ATTs long distance market share fell from 90% in 1984 to 45% in 1997, its revenues increased from $35 jillion to $40 billion during this same period. Thus, although ATT lost market share, its revenues increased in a competitive marketplace. The benefits from introducing competition in international and domestic telecommunications markets can be fully realized, however, only when market participants have the incenti ve to compete vigorously to attract the greatest amount of business.It has been the U. S.experience that these incentives exist only where there is open entry into the telecommunications services market. Where entry is limited, or where only one or two new entrants are allowed to compete against the incumbent carrier, the benefits of competition are limited as well. For instance, when cellular telephone service was first introduced into the United States in the 1980s there were only two licensees in each market. As a result, prices remained relatively high and demand was more limited. After additional licenses were authorized in each market, priced dropped, new services were introduced and demand exploded.BUILDING A TELECOMMUNICATIONS SECTOR AS A divulge OF ECONOMIC DEVELOPMENT Developing countries face many infrastructure challenges. patch roads, water, and electricity are obvious fundamental indispensablenesss, development of a strong communications and schooling system is vit al for the country to survive and prosper. As global developments increasingly push competition and its benefits, developing countries can realize these benefits in part through encouraging the establishment of an indigenous telecommunications sector.And one highly effective way to achieve this is to promote and nurture the growth of baseborn and entrepreneurial entities inwardly that sector. The United States experience provides approximately insight. Historically, most of the cutting- edge commercial and technology breakthroughs in the United States have been developed by individual entrepreneurs or small businesses, from Alexander Graham Bell to Bill Gates.Additionally, Americas 22 million small businesses produce more than half of the nations gross domestic product, and businesses employing fewer than twenty people have created all 99.99 percent of the nations new jobs in recent years. Such a phenomenal success story is due not only to the free enterprise system and profi t motive, but also to a carefully developed government policy of supporting and nurturing small businesses.The U. S. has implemented numerous federal official programs to assist small businesses in harnessing the engines of economic growth and innovation loan guarantee programs, technical assistance programs, investment programs, anti- discrimination regulatory programs, outreach efforts, information and instruct programs.Congress established the Telecommunications Development Fund, some $25 million, to invest in promising new telecommunications businesses. Obviously the environment and situation of most developing countries is preferably different from that in the United States, and overcoming an embedded monopoly telecom provider is something weve never had to do. Still, some basic steps privatizing, establishing an independent regulator, developing helpful tax and fight laws, a willingness to waive regulatory and filing wants to the extent possible can produce great benefi ts.A developing country could make it a condition for foreign carriers and operators serving seeking to provide service to (or within) its territory to undertake efforts to promote or support indigenous and start-up businesses. Supporting the growth of small and entrepreneurial telecom businesses by various means can lead to permanent economic gains for developing nations economies, and to full participation in the global telecom marketplace.METHODS OF INTRODUCING COMPETITION IN THE TELECOMMUNICATIONS SECTOR Restricting methods and modes of entry can cause investment distortions and result in higher prices to consumers.It is by allowing the marketplace to select preferred approaches that policymakers encourage efficient entry. Three methods are typically used to introduce competition into the telecommunications sector * Facilities- found competition * Unbundling of profits elements * Resale In addition, a technologically neutral policy fosters innovative systems and alternative fac ilities designed to meet the needs of the marketplace. For example, the giveion of a wireless network may be more appropriate in some markets than the development of a competing wireline carrier. Facilities-Based Competition.When a new entrant constructs a network using its own facilities to reach its customers (i. e. , without using the incumbent carriers network), that type of entry is ordinarily referred to as full facilities-based competition. By developing a new network, a facilities-based competitor is not constrained by existing, possibly obsolete embedded name and instead can install the newest, most efficient technology. As a result, the competitor will be able to supply new or additional services such as faster transmission and exchange speeds or higher bandwidth capacity, and may be able to do so at lower costs than the incumbent.Facilities-based competitors not only directly benefit their customers but also create competitive pressure for the incumbent to upgrade it s network. In addition, facilities-based entry allows the marketplace to drive competition with less regulatory presence. As discussed more fully below, full facilities-based entrants still require interconnection for the mutual exchange of traffic with other providers. New entrants customers need to be able to communicate with subscribers on other networks, especially the incumbents network where the majority of users obtain their service.Without the ability to interconnect on plumb terms, a new facilities-based competitor cannot survive. Use of Unbundled Network Elements While full facilities-based competition has many advantages, it may not always be practical for a new entrant to construct an entire network. For example, it may be economically feasible to construct switching and long distance facilities but infeasible to construct local loops or last mile facilities that connect to customer locations. This might be due to economies of scale or the practical difficulties associa ted with acquiring requisite rights-of-way.Thus, a entropy entry route is one in which the new entrant constructs portions of a network and purchases inlet to the relevant essential facilities of the incumbent providers network, such as the local loop. This method of entry is referred to as using unbundled network elements, and typically must be required by law or regulation. Entry through the use of unbundled network elements has a number of important advantages. First, it reduces entry barriers by allowing new entrants to begin brooking service without having to construct an entire network.Second, on a longer term basis, it prevents the incumbent carrier from exploiting any residual monopoly power that may arise through remaining economies of scale or from the practical difficulties of obtaining needed rights-of-way, antenna sites for wireless systems, etc. Third, it allows new entrants additional avenues of innovation. For example, new entrants can purchase unbundled loops fr om the established carrier and use them with entirely different types of technologies (e. g. , packet switches based upon Internet Protocol (IP)) than those employed by the incumbent carrier.In this arrangement, consumers benefit from these new and better services and additional choices that competition provides. Regulatory intervention is needed in order to require the incumbent carrier to unbundle its network and to price the resulting elements at economically efficient prices. More specifically, incumbents should be required to provide any requesting telecommunications carrier non-discriminatory access to elements of the incumbents network on an unbundled basis on rates, terms and conditions that are just, reasonable, and non-discriminatory.Incumbents should be required to provide any reasonable method of interconnection, including corporeal collocation or virtual collocation, or interconnection at a point between the incumbents and new entrants network. In the United States, t he Telecommunications Act of 1996 identified a minimum list of network elements that incumbent local exchange carriers must unbundle. These network elements include local loops, network interface devices, local and tandem switching capabilities, interoffice transmission facilities, signaling and call-related databases, operations support systems, and operator services and directory assistance facilities.In addition, new entrants should have access to pole lines, ducts, conduits, and rights-of-way owned or controlled by the incumbent. Resale In the telecommunications context, resale occurs when competitors obtain a service at a discounted or wholesale rate from the underlying, established carrier and then sell the service to their own customers. Resale can serve a multi-faceted role in promoting and sustaining competition in telecommunications services. Resale may be an effective entry vehicle for new entrants that may ab initio lack the necessary capital to build their own networks .Resale may also allow small competitors, which will not become facilities-based providers, to offer service. In addition, resellers may stimulate usage of the incumbents network, and thus may benefit the incumbent facilities-based provider and further growth of the entire sector. Moreover, this competition may help to keep prices lower for consumers, increase consumer choice, and ultimately stimulate economic growth. Experience in the U. S. long distance market suggests that resale can yield significant public benefits.Resale competition takes the form of arbitrage, where a reseller purchases a large number of minutes at a quantity discount and resells them to small customers at prices lower than the retail prices otherwise operable to those customers. By providing affordable prices for the customer, resellers stimulate demand and thus compel facilities-based carriers to bring their prices closer to actual costs. At the same time, the increased competition from resellers expands t he availability of innovative services, such as new billing terms and alternative rate structures.In particular, resellers can create consumer value by creating different billing plans or targeting their marketing to under-served groups within the community. Many countries have committed to a policy of resale as part of the WTO Basic Telecommunications Agreement to provide market access for basic telecommunications services. For smaller countries, resale provides some of the benefits of competition even if the total amount of telecommunications traffic generated is insufficient to attract multiple facilities-based carriers.Resellers may resell an entire service without modification, which is referred to as Total Service Resale. Resellers may also choose to obtain some services from the underlying carrier and combine them with services that they provide themselves. For example, a carrier may offer long distance services using its own switching facilities but lease long haul facilitie s from the incumbent provider. Resale also allows providers to offer bundles of different services without actually constructing the necessary facilities.By doing so, they can achieve certain economies in terms of marketing while providing a package of services for the convenience of their customers. For example, a local exchange carrier can offer long distance services without constructing long haul facilities. Similarly, a carrier whirl both local and long- distance services could add mobile services to its package without constructing its own wireless network. In many industries resale occurs as a natural part of the development of markets. However, in telecommunications, a dominant carrier may be required by law or regulation to make its services available for resale.In particular, a regulatory requirement may be necessary to force the underlying carrier to offer services at a wholesale rate. In a competitive market, however, some providers may find a source of revenue in the p rovision of services on a wholesale basis. This often occurs when the facilities-based carrier has excess capacity on its network. In the U. S. long distance market, some carriers have constructed nationwide fiber-optic networks with the intent of fling transmission services on a wholesale basis to other carriers.Real market experience has shown that resale can spur competition. The growth of competition in the U. S. long distance market resulted from a combination of the facilities-based and resale competition models. From the early stages of long distance competition, facilities-based providers and resellers have actively competed against one another. This approach resulted in more affordable rates, new service offerings, and numerous new entrants. Despite the obvious benefits of resale, it has limitations.First of all, the reseller is limited to a greater or lesser extent by the technical features and functions of the underlying carriers network. This limits the ability of the re seller to innovate. Second, resale alone does not put competitive pressure on wholesale rates and services because the underlying carrier may not be subject to competitive pressures to innovate at the wholesale level. This means that the regulator must retain some full stop of control over the pricing, terms and conditions of the wholesale offering.INTERCONNECTION, THE KEY TO COMPETITIVE SUCCESS The key to competition within telecommunications services is the ability of networks to interconnect. Interconnection allows communications to occur across networks, linking competitors so customers of different networks can communicate with one another. For competition to be successful at maximizing consumer benefits and innovation in the telecommunications market, carriers that compete for customers must also provide competitors with access to those customers.Shared access to customers occurs through interconnection, and access to all customers is necessary both for successful entry and f or continued competition. If the incumbent, with the vast majority of customers, does not interconnect with new entrants, it is unlikely that the new entrants will remain economically viable. A regulatory framework is needed to aid in the transition from a monopoly environment to a competitive environment because a monopoly or dominant provider has a strategic interest to keep out or minimize competitors in its market.As a result, the monopoly or dominant provider has a strong incentive to limit interconnection. Therefore, a regulator that is independent of any operator and of unlike political influence should adopt rules that give new entrants bargaining strength equal to the incumbents. The price of interconnection (or transport and termination), for example, could serve as a significant barrier to entry for new networks. An incumbent monopolist has an incentive to demand a high price to terminate calls originating on a new entrants network and pay nothing for calls originating o n its own network.In the United States, transport and termination charges are reciprocal and based on the long run additive cost of providing the transport and termination on the incumbents network. Thus, the primary purpose of mandated interconnection is to foster a competitive environment that is fair to all competitors. Because the incumbent service provider has the vast majority of customers, a new entrant must be able to interconnect in order to provide full access to its customers. Without the ability to interconnect, new entrants would be severely restricted in their ability to compete with the incumbent.REGULATORY TOOLS FOR PROTECTING AGAINST THE EXERCISE OF MARKET POWER DURING THE TRANSITION TO COMPETITION Special problems may arise when a telecommunications carrier with monopoly power in the provision of a particular service or facility wants to offer a competitive service that is dependent upon the use of the monopoly service or facility. This may occur, for example, whe re competition has been introduced in the long distance and international markets but the local market remains a monopoly. The two problems are cost- switch/cross-subsidization and discrimination.The first problem arises if the monopoly service is regulated on a rate-of-return (profit) basis. If so, there is an incentive for the carrier with monopoly power to shift costs from the competitive service to the monopoly service. Shifting costs in this manner artificially raises the price of the monopoly service and allows the carrier to charge below-cost rates for the competitive service. This results in the captive customers paying above- cost rates for the monopoly services and hampers the development of a viable market for the competitive services.An example of this situation could occur when a carrier with monopoly power in the provision of local facilities or services wants to enter the long distance market or information services market. The second problem occurs when control over an essential service or facility necessary for a competitive service enables the monopoly carrier to discriminate in estimate of its own competitive offering. For example, a carrier with monopoly power in the provision of local facilities or services has the incentive to discriminate in favor of its own long distance or information service.This discrimination may manifest itself in the form of better quality interconnection or faster episode times for needed facilities or services. What follows is an overview of some of the tools that are available to policymakers and regulators to discourage or prevent cost-shifting/cross-subsidization and discrimination. These tools or techniques can be used alone or in combination. The more stringent techniques may be appropriate when and where the threat is greatest. Less stringent techniques may be appropriate as competition takes hold in the previously monopolized market.Outright Prohibition on Providing the Competitive Product or Service O ne technique for preventing a carrier with monopoly power from cross-subsidizing and peachy in the provision of a competitive service is to prohibit the carrier from entering the competitive market. Outright prohibitions have been and are being used in the United States. For example, the original agreement (Consent Decree) that led to the divestiture of the Bell Operating Companies from ATT prohibited the former from certain activities, including the provision of certain long distance services and information services.Under the Telecommunications Act of 1996, the Bell Operating Companies are prohibited from offering long distance services and alarm services until certain conditions are met. While outright prohibition prevents cross-subsidization and discrimination, it may also deny the public the benefits of possible economies of scale or scope that may be derived if the carrier is allowed to provide the competitive service. Outright prohibition may also deny the public the benefit s of innovation that might come from the participation of the monopoly carrier in the competitive market. Price Caps for adjust Monopoly Services.The incentive to shift costs from a competitive service to a monopoly service exists under profit regulation. Under price cap regulation, the prices of the monopoly services are capped (indexed to inflation and expected productivity increases). Price cap regulation has a number of advantages, including incentives for the carrier to be more efficient. It also discourages the monopoly provider from shifting costs from the competitive activity to the monopoly activity, because if the price of the monopoly service is capped, there is no incentive to shift costs from the competitive service to the monopoly service.Separate Subsidiary requisite Under this requirement, the carrier with monopoly power is allowed to provide the competitive service, but only through a separate subsidiary or affiliate. The separate subsidiary requirement is combine d with an obligation that the monopoly carrier treat the affiliated company no better than it treats unaffiliated providers of the competitive service. In other words, the monopoly carrier must drive with the affiliate on an arms- length basis. The regulator has the ability to control the degree of separateness.Examples of the requirements for separateness can include requirements that the monopoly provider and its affiliate * Maintain separate books of estimate * Utilize separate officers and personnel * Employ separate marketing activities * Not share common equipment or facilities * Adhere to certain restrictions on information flows that would unfairly benefit the competitive affiliate In addition, a typical requirement is that if the affiliate must obtain any transmission services from the monopoly provider, it must do so on a tariffed basis.Tariffing Requirements Tariffing is a fundamental technique traditionally used to protect users (both consumers and other carriers) agai nst discrimination. Tariffing requires the regulated monopolist to file tariffs explaining its service rates, terms and conditions with the regulatory agency and to adhere to those rates, terms and conditions once the tariff is filed. Through the tariff and enforcement processes, which include opportunities for public comment, the regulator has some ability to prevent cross-subsidization and discrimination. invoice Separation A requirement to maintain separate books of account can be adopted even without the imposition of a separate subsidiary requirement. method of accounting separation typically requires the regulated monopoly provider to set up and maintain separate books of account for the competitive activity and to adhere to prescribed methods of separating costs. This provides a degree of protection against cross-subsidization. Imputation Requirements.An imputation requirement obligates the regulated monopolist to charge the same amount for a service or facility provided to a competitive affiliate or operation that it charges to an unaffiliated provider, and to include that amount in the price it charges for the competitive service. Service Quality Reporting Requirements A service quality reporting requirement obligates the regulated monopolist to collect date and report on the quality of the services provided to both affiliated and unaffiliated competitors.This helps regulators detect and correct discrimination in the provision of essential services or facilities to competitors. Resale Requirements As discussed front, a resale requirement has a number of advantages in promoting competition. Resale can also help prevent cross-subsidization. For example, where a carrier has market power in the provision of switched services but there is competition in the provision of private lines, the carrier may try to increase the price of the switched service in order to cross-subsidize and thus under-price its private line offering.If the carrier is required to a llow the resale of the private line offerings, however, entrepreneurs could combine the private lines with their own switching, and undercut the prices of the monopolists switched service offering. This has the effect of discouraging the carrier with market power from engaging in cross-subsidization. Unbundling Requirements An unbundling requirement forces the regulated monopolist to make network elements available to competitors on an unbundled basis under rates, terms and conditions that are just, reasonable, and non-discriminatory.To provide incentives for entry, the price of an unbundled element should equal the long run incremental cost of providing the element. Unbundling was discussed earlier as a way of lowering entry barriers and promoting innovation, but it also guards against anti-competitive tying arrangements, which arise when the monopolist requires a customer (e. g. , a competitor) to buy something spare as a condition of acquiring an essent.