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AT&T: Oligopoly Model Research Paper


AT&T can be classified as an Oligopoly Model company. Oligopoly model is characterized by operating in an environment where competition is limited. It is a market where the players or the services providers are few and control the large market share. Lest of the market is acquired by small upcoming companies which try to enter in the market (Robert, 2011). This market model can also be characterized by the price stability for a some period.

According this model, businesses focus on non-price competition and in turn improve on product and services quality as there is the main goal of this marketing strategy. Presentation and other non-prices marketing strategies are used to extend the company market share. In case of prices shift, the market controlling companies must have a formal agreement as a way of discouraging unhealthy competition and also maintaining their market share.

Oligopoly products are homogenous or have slight difference between them (AT&T and others offer almost the same services). The four above named companies offer the same services aimed at the same targeted population. The only difference between them is in the way they offer those services.

This means that they target the same customers failing to identify a formula by which they do not practice unhealthy competition between them. All these elements can be witnessed in the AT&T market structures, hence fitting to be an oligopoly (Robert, 2011).

According to this market model, the general pattern is that the controlling companies in the market have a steady stable income allowing some of them to operate in supper abnormal profit for a long time. This is because they have the clients and they determine what to get in terms of profit.

Market prices are agreed upon by the main players, hence limiting chances of competing unfairly. They act as the price setters, and the small companies adopt the set prices. In case of inflation, the companies increase their prices with respect to the cost of production. In case of deflation, the companies might decide to retain the prices or lower them as a motivating factor to their consumers.

Holding the fact that this market model operates nearly like a monopoly, other small players can push them to change their pricing strategy, but according to the general or natural way, the pricing of the services of this market model is determined by cost of production and agreement between the players (Hannaford, 2007).

In this market model, the companies, for example, AT&T, concentrate more on the long-run goals and objectives. The short-run objectives or behaviors of these companies are to ensure that they retain their customers. Market share retaining is very paramount to them, and they would always better loss some profits but retain their customers.

In case where the upcoming companies are to share some of their market share, the monopolistic companies involved agree to lower their prices just for a short time as a way of discouraging the competitors. In the long run, the companies objective is to retain and expand the market share as well as improve their products quality.

In case the market share is threatened, the company strategically involves in a vigorous marketing of its services to the targeted customer but later closes down the marketing operation. Holding the fact that the company has well elaborated structures, the firm finds it easy to access its targeted customers.

In the long run, AT&T has been investing in long term projects, such as telecommunication infrastructures. Majority of the companies that operate in oligopoly invest in expensive long-term structures with interests to serve their customers’ needs. Change in prices only happens in the short run, and it must be brought forth by the economic change within the economy. When, for example, the cost of living changes, AT&T modifies its prices in regard with the others, in order to accommodate their profit expectations (Hannaford, 2007).

Holding the fact that there is no price competition in this market model, the company profit objective is a primary goal. Also, phone services industry is a basic industry where everyone must use telephone in their daily activities. This ensures a steady income for the companies operating in the market. Lack of market and mostly price competition ascertain the company’s profitability irrespective of the situation within the economy.

It is also noted that this industry keeps on revolving technology as a way of remaining relevant in the market and retaining a great market share. The ability to improve on the service delivery acts as the competitive edge to the stakeholders. There is an increasing tendency to the stakeholders to keep on improving their technological capability both to ensure long-term and short-term objectives.

The telecommunication industry has limited areas where operating company can transact business. There are three main areas, namely, telephone services, data services and telephone and data equipment. Telephone service is the main area of concentration due to which the market players intend to maximize their profits. They have developed infrastructures all around the world to make sure that they deliver their products globally.

In the United States, 99% of the people who are between the age of 14 and above posses a phone cell, hence proving a steady market for the mobile phone companies. Data has also become one of the main services offered by the companies in the United States. Most of the services are delivered online. Companies in the industry also have diversified their operational risks by selling phone and data equipments in and outside the region.

The three areas also gain considerable cost to the company. The need to increase profits and to diversify the company interests makes such companies and organizations incur the cost of producing and maintain this services. When there is a possible income reduction, the company intensifies other sub areas where it intends to make extra money and support the company activities.

AT&T managed to make a profit of 18%, 24%, 35% and 42% in the financial years 2008, 2009, 2010 and 2011 respectively. These data articulate the economy performance perfectly well. To the management of the company, it is advisable to diversify its interests to other areas of the related field. This will help the company cope with hard economic times whereby their will be a steady income from different sources.

Considering the information mentioned above, it shows that the company does not gain good profit when the economic area is not sound. Taking into account these facts, the management should extend the production of its company to the other areas and, mostly, to those that are not directly affected by the economic crisis, for example, to food industry (Baye, 2000).

Technology development is the main factor that affects the degree of competitiveness in the telecommunication industry. Streamlining this area ensures the business success, and failure to follow the market trend within the same area will subject the business to an economical challenge.

Also, the development of other service providers that are effective and reliable due to the enhancement of the technology has threatened the industry. Facebook and other social sites have affected the industry mainly because the majority of the targeted customers prefer Facebook for communication (Kesavayuth, 2001).

References

Baye, M. R. (2000). Oligopoly. Bingley, U.K: Emerald.

Hannaford, S. (2007). Market domination!: the impact of industry consolidation on competition, innovation, and consumer choice. Westport, Conn.: Praeger.

Kesavayuth, D. (2001). Market shares and non-price competition strategy in oligopoly market: A case study of instant noodle market. Bangkok, Thailand: Thammasat University.

Robert, J. (2011).Transactions and Strategies: Economics for Management. New York: Willy.

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