Why Astro can? We can't?

Astro is a monopolist in Malaysia’s satellite television industry. 

 How does Astro set its BARRIERS to prevent new entrants?

There are 4 ways.

Firstly, Astro is price maker but with the scale of demand. It keeps on increasing price but is still having an increase in total revenue because the increase in price has caused a slight decrease in demand but the total revenue is higher than before. 

Profit maximizing output (QM)

Secondly, it has a large initial investment. In July 2013, Datuk Rohana (CEO of Astro) invested 6.4m to 18 new transponders by 2019. 

Rohana (Astro CEO)

New transponder

Thirdly, it differentiates its attributes from potential competitors. Malaysians can enjoy free satellite television through a service called NJOI which launched by Malaysia PM, Najib in 2011. 

                                  Najib

In my view, Astro tend to gain more profits by raising its popularity. NJOI is provided to customers with low-income. Astro targets these audiences and thus, it holds the whole market. 

Finally, Astro has the directive of government. It is the only one TV operator given exclusive licence for 20 years. 

As a conclusion,

Investments of Astro to restrict new entrants are too high. In order to decrease market price, government should implement reforms to encourage new entrants. 

Additional information:  

Government reaction to USA Satellite TV market 

Direct TV and Dish Network is the only two companies that offer satellite TV in USA.

Dish Network has attempted to buy Direct TV but U.S. regulators blocked the deal in 2002.

Ten years later, Direct TV CEO Micheal White said, “Consolidation could be pro-consumer, perhaps.” Besides, its competitor, Dish Network chairman Charlie Ergen also stated that he would like to merge with Direct TV.

But, till now they still haven’t passed muster with the FCC and antitrust officials.

Based on FCC (Federal Communication Commission) official website, it capitalizes on its competencies in promoting competition, innovation, and investment in broadband services and facilities. This is why a merger between Direct TV and Dish Network can’t be completed.

If only Malaysia government launches the same policy, so we could make our choices. 

Reference: 

http://answers.yahoo.com/question/index?qid=20080214150244AAAr8NF

http://www.fcc.gov/what-we-do

http://www.deadline.com/2012/09/directv-dish-network-merger-possibility/

http://www.thestar.com.my/Business/Business-News/2013/07/12/Libertys-Malone-Says-Deals-Needed-In-US-Cable-Market.aspx

PERFECT COMPETITION AROUND US

Perfect competition is a market structure when all the five criteria met, which are:
(a) firms that sell identical products
(b) price takers for all firms
(c) all firms that have a relatively market share
(d) the industry is characterized by freedom of entry and exit
(e) the nature of the products and the prices charged by each firm is known by the buyers

Perfect competition consists of infinite sellers and buyers. These sellers will be supplying homogeneous products to the consumers. Since there are many sellers, the prices of the products would be almost fixed. So, the sellers have to follow the strict market rules which exist. The competition existing between the sellers in the perfectly competitive market is totally impersonal. Hence, it is the ideal one. The supply of homogeneous product ensures that the products are available for the consumers whenever they wish to buy them and there is no hoarding and illegal practices. Perfect competition is the best market structure to protect the interests of the common consumers. Profit maximisation is the main aim of the sellers in a perfectly competitive market. Because of many sellers, the market share of each seller automatically reduces in a perfectly competitive market. This gives them freedom to enter and exit from the market whenever they wish.

Perfect competition in farming

From ABC News, deals with the strawberry crop in Florida. Due to the unusually cold weather in January of 2010 the strawberry crop ripened all at once. Normally the crop ripens and goes to market over a 6 to 8 week period. With so many strawberries ripening at the same time, the price of strawberries fell from one dollar per pound ($2.20 per kilogram) to $.25 per pound and because of this, farmers destroyed their crops instead of picking them. People interviewed by ABC news believe the strawberry farmers were just being selfish and that their actions were absolutely senseless. Farmers also wouldn't allow people to come onto their land to pick strawberries, preferring instead to dig them up and throw them away. There is no indication in the article that strawberry farmers are going to plant a different crop for next year.

Reference: http://www.pearsoned.ca/highered/divisions/blogs/econ_inthe_news_ragan_s/archives/00000003.html

AIRPLANE CRASH - GDP

AIRPLANE CRASH IN SAN FRANCISCO!

Asiana Airlines.

July 6 2013 - San Francisco

An aeroplane crashed in San Francisco, United States has faced a technical failure while landing on the airstrip. 

HOW DOES THIS EFFECT THE ECONOMY?

Asiana Airlines formerly Seoul Airlines. One of the two major airlines in South Korea. A huge threat to the competitor, Korean Air has faced a very troublesome issue due to the recent plane accident. Not only this has caused it's loyal customers of Asiana Airline to switch to the firms leading competitor, but also would jeopardise its country's gross domestic product (GDP). Gross domestic product(GDP) measures the total market value or all final goods and services produced within the nation's geographical boundary during a given period of time. At 8th July 2013, Asiana Airline's market share dropped by 10%, but regained some ground and closed the trading day with a loss of 5.8%. This shows investors has sold their share to the market which leads to a decrease in investments that causes a decrease in the country's gross domestic product (GDP).How do regain trust from investors? I think what Asiana Airline should do is they should do dirt cheap promotions as cheap as budget airline but with aircrafts which are better than the budget airlines. This encourages consumers to fly with Asiana Airline and in time, consumers regain trust in the firm. Asiana Airline may earn profits which may lead to the entry of new investors.

Reference: http://www.usatoday.com/story/travel/news/2013/07/06/airline-crash-san-francisco/2495099/

http://money.cnn.com/2013/07/07/investing/asiana-shares-crash/index.html

Supply of Petrol

Prices of petrol are increasing throughout the year in most countries. The fluctuation is mainly influenced by the cost of crude oil, but forces of supply and demand can also affect the petrol prices significantly in the short term.  

The cost of crude oil, also known as petroleum has increased at a significant rate over the past few years. This is due to the increasing global demand yet limited oil production capacity. The shortage of supply can also occur when the oil producing regions are facing continuous political instability as seen in the Middle East.

The graph above shows the market of petrol when the supply suffers shortages and the demand increases. The shift from D1 to D2 can be deduced as an increase in demand while the shift S1 to S2 is the decrease in supply. It is clear to see that the equilibrium price of petrol increases significantly from P1 to P2. Although there's an apparent decrease in supply, the equilibrium quantity increases from Q1 to Q2 due to the fact the  increment of demand is too great compared to the shortage supply of petrol.

The price of petrol is going to increase even more as the resources are depleting each year. No one knows for sure what will happen when we are out of petroleum one day. What do you think? 

Reference: http://www.caltex.com/global/resources/determining-fuel-prices/

Application of Price Theory

Elasticity
Price elasticity of demand measures the responsiveness of people to changes in economic variables.

• Elastic demand - Large percentage change in quantity demanded for given percentage change in price (Ed>1) 
• Inelastic demand - Small percentage change in quantity demanded for given percentage change in price (Ed<1) 
• Unit elastic demand - Equal percentage change in quantity demanded for given percentage change in price (Ed=1) 

Cases related to elasticity of demand.

The demand for hybrid cars in Malaysia

(http://paultan.org/2011/10/07/budget-2012-hybrid-car-incentives-extended-till-2013/)

Budget 2012: Hybrid car incentives extended till 2013!This just in. Prime Minister Datuk Seri Najib Tun Razak, who is also Finance Minister, is reading his Budget 2012 speech at the moment, and he has already touched on something that involves the auto sector, announcing that incentives given to hybrid cars have been extended till 31 December 2013! 

Here’s some background: In Budget 2011, the government introduced FULL import duty and excise duty exemption for hybrid and electric cars and motorcycles.

Previously, it was 100% import duty exemption and 50% excise duty exemption, Budget 2011 made it 100% exemption for BOTH import duty and excise duty. The deal, for hybrid cars with 2.0 litre engines and below, was supposed to expire on Dec 31, 2011.

This has led to huge growth in sales for hybrid models such as the Honda Insight and Toyota Prius, while Lexus took advantage of this incentive to bring in the CT 200h hatchback at an attractive price. Honda Malaysia and UMW Toyota will be happy with today’s announcement and can plan ahead from now, bringing in more of the hybrids.

• Cars are classified into luxurious goods therefore this case is determined as elastic demand
• When the Malaysian prime minister decided to extend the hybrid car incentives, this made the demand for hybrid cars increase greatly. Thus, leading to a huge increase in sales for Toyota, Honda and Lexus hybrid car models.
• "Total hybrid vehicle sales jumped over 2,000% to 8,334 units in 2011 from 328 a year earlier due to the ongoing excise duty exemptions on such vehicles.Honda recorded a surge in hybrid vehicle sales to 4,596 units from 129 in 2010, while Toyota sold 2,457 units versus 198 previously. Lexus sold 1,267 units compared with just one unit previously. Porsche, meanwhile, sold 14 units last year."(Thestar.com.my 2012). This shows the increase of demand caused by lowered prices on hyrbrid cars in Malaysia.