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Monopolistic Competition in Dubai

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    Etisalat, formed in 1976, which was a strong monopoly in the Telecom industry of U.A.

    E till 2006 till a competitor Du emerged into the local markets. Making Etisalat a firm operating in a Monopolistic Competitive market. Etisalat came into operation on 30 August 1976. The corporation provides telecommunication services to the U.

    A.E. and is one of the foremost service providers in the Middle East constituency.My Identification of this firm will be based only after 2006 with only a few insights from its history as a monopoly.

    Behaviour of the Firm as a Monopolistic CompetitionEtisalat as a monopolistic competition has gone through tremendous change. One of the most noticeable changes was its corporate identity, i.e., the Logo.

    Etisalat as a firm started to create a more intensive “people approach” marketing strategy by advertising on various mediums. Few of its well-known taglines were “Serving 13 million and many more” & “We thank all our 13 million customers”; something that it did not indulge in for more than 30 years.Its advertising strategy now not only focused Arabs but also included other expat residents of U.A.

    E.With the entry of a competitor market, Etisalat did not reduce its tariffs and talk time rates but did follow suite in the options and schemes to be provided to their customers. One of the examples would be the following article that appeared in www.arbianbusiness.

    com on March 18th, 2008.(The article has been edited due to its size)Etisalat and du unveil customer offersby Derek Francis on Tuesday, 18 March 2008The UAE’s two mobile operators have traded punches, by announcing rival offers in the same week. Etisalat launched its new reward programme at the start of this week, while rival operator du re-introduced its popular initial subscription offer at the same time.Etisalat unveiled its reward programme, dubbed ‘More’, on Sunday,allowing users to earn points based on their mobile phone spending.

    Points can be redeemed with Cellucom, i2, Paris Gallery, Blue Banana, Prime Limousine and Rotana Hotels Suites ; Resorts. In addition, members can convert their points into Skyward miles, Emirate Airline’s frequent flyer programme. The scheme, which is free from registration or subscription fees, is available for both pre-paid and post-paid customers. Points are valid for a period of two years.

    As part of its first anniversary celebrations, consumer and enterprise subscribers who choose du’s monthly plan will pay Dh125 ($34.05) and receive a credit-back of Dh124 ($33.8). Pay-as-you-go customers will pay Dh55 ($14.

    98), with a credit-back of Dh54 ($14.70), with Dh27 ($7.35) coming from the first call, and the remaining after a month. Osman Sultan, CEO, du, said: “For our Anniversary Offer we are pleased to re-introduce what has been a hugely popular offer for new customers, as our way of saying welcome to the du family.

    “Contrary to the offer by Du, Etisalat’s “MORE” included what it called “free” numbers. If you’d purchase an Etisalat prepaid of postpaid number, the price of the number will be remitted in full over a period of 3 months. Thus once again following suite of its immediate and at the moment, only competitor.Business DivisionCompany NameDescriptionComtrustComtrust is the first comprehensive e-commerce infrastructure provider in the Middle East Region.

    EbtikarEtisalat’s specialist Card Manufacturing Unit – EBTIKAR, is a sophisticated, state-of-the-art cards manufacturing unit set up by Etisalat in 1996 to tap the exponentially growing card/applications market.Emirates Data Clearing HouseEmirates Data Clearing House – EDCH was established in November 1994, specifically to provide a single point of support for the Roaming Facility provided by the GSM 900 and 1800 network operators.Emirates Internet ExchangeEmirates Internet Exchange – EMIX is the first Network Access Point – NAP, private or public, established in the region built on multiple of STM-1’s circuit worldwide.Emirates Internet and MultimediaRecognizing that the Internet would soon become the fastest growing segment in the telecommunications industry, Etisalat launched a dedicated Internet and Multimedia Unit on March 7, 2000.

    Etisalat AcademyEtisalat Academy was founded to help people keep pace with rapidly changing technology in the field of telecommunications.Etisalat College of EngineeringEstablished in 1989, the Etisalat College of Engineering provides a Centre of Excellence for educating a national workforce in Telecommunications and related technology.The Contact CenterTo meet its objective of customer satisfaction, the Corporation established a state-of-the-art Contact Centre to manage all non face-to-face interactions with its customers in or out of the UAE.UAE LabEmirates Telecommunications Corporation, Etisalat, the UAE’s national provider of telecommunication services, offers a unique service in the region, Telecom Products Type Approval.

    UAE Network Information CenterUAE Network Information Center is the authority that manages domain name registration under .ae TLD (Top Level Domain) as well as IP Address assignment.Etisalat also has two subsidiary companies. This again goes to show the expansion and growth of the company .

    The companies are E- Marine and E- Vision.Attributes of Monopolistic Competition:-Many Firms* There are many firms competing for the same group of customers. Product examples include books, CDs, movies, computer games, restaurants, piano lessons, cookies, furniture, etc.Product Differentiation* Each firm produces a product that is at least slightly different from those of other firms.

    Rather than being a price taker, each firm faces a downward-sloping demand curve.Free Entry or ExitFirms can enter or exit the market without restriction. The number of firms in the market adjusts until economic profits are zeroSimilarities with Perfect Competition: -The monopolistic competition model assumes:Large number of firmsEach firm has a negligible impact upon its rivals.Differentiated products.

    Differentiated productsThe product is of different type/quality.Each firm is a price setterFree entryFree access to all available technologiesThe monopolistic competition model maintains all of the assumptions of perfect competition except that of product homogeneity.Thus: -* A profit-maximizing firm will choose an output level such that marginal revenue equals marginal cost.* Profits are zero in the long run since there is free entry.

    * P = AC – Like perfect competition, monopolistic competition is efficient in consumption.* TR = TC – Like perfect competition, monopolistic competition leads to an equal income distribution.Similarities with Monopoly: -The main similarity between monopolistic competition and monopoly is that:-* P > MC – Like monopoly, monopolistic competition is not efficient in resource allocation.* AC >MC – Like monopoly, monopolistic competition is not efficient in production.

    * Product homogeneity.Demand, Revenue and Profits:-The four characteristics of monopolistic competition mean that a monopolistically competitive firm faces a relatively elastic, but not perfectly elastic, demand curve, such as the one displayed in the exhibit to the right. Each firm in a monopolistically competitive market can sell a wide range of output within a relatively narrow range of prices.Demand is relatively elastic in monopolistic competition because each firm faces competition from a large number of very, very close substitutes.

    However, demand is not perfectly elastic (as in perfect competition) because the output of each firm is slightly different from that of other firms. Monopolistically competitive goods are close substitutes, but not perfect substitutes.A firm maximizes profit by selecting the quantity of output that generates the greatest gap between the total revenue line and the total cost line in the upper panel, or at the peak of the profit curve. In this example, the profit maximizing output quantity is 6.

    Any other level of production generates less profit.Advertising and BrandingFirms that sell highly differentiated consumer goods typically spend between 10 and 20 percent of revenue on advertising. Overall, about 2 percent of total revenue, or over $100 billion a year, is spent on advertising.Advertising may make markets less competitive if it manipulates people’s tastes rather than being informative.

    Advertising may give consumers the perception that there is a greater difference between two products than really exists. That makes the demand curve for a product more inelastic, so the firms can then charge greater markups over marginal cost. However, some advertising could make markets more competitive because it sometimes provides useful information to consumers, allowing them to take advantage of price differences more easily. Advertising also facilitates entry because it can be used to inform consumers about a new product.

    In addition, expensive advertising can be a signal of quality.Brand names may be beneficial because they provide information to consumers about the quality of goods. They also give firms an incentive to maintain high quality, since their reputations are important. But brand names may be criticized because they may simply differentiate products that are not really different, as in the case of drugs that are identical with the brand-name drug selling at a much higher price than the generic drug.

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