Price-competition at the German mobile market

Seminar paper from the year 2007 in the subject Economy - Theory of Competition, Competition Policy, grade: 1,7, Aachen University of Applied Sciences, course: Struktur- und Wettbewerbspolitik, 14 entries in the bibliography, language: English, abstract: 1. Introduction 1.1 The measurement of demand The measurement of demand within the mobile market can be determined by four action parameters, which operators can use: •price •quality •service •advertising The implementation for those action parameters depends on the product itself, the phase of the market, the type of company and the market form, including barriers the market offers. In my homework I will focus on the criteria price and service to give a short explanation of the so called overall concept 'Harvard School'. Discussing this concept, the state does not interrupt any action of the market. It includes the assumption that the market will find its equilibrium itself and does not need any interferences. After giving some general information about the German mobile market, I want to present my results about the development of prices for mobile services. Furthermore, another focus should be the service that operators provide. Therefore especially the innovation of new tariffs and reaction time of the operators will be analysed. Afterwards the German mobile market will be evaluated by an international comparison. Altogether each topic that is worked out should be finally interpreted towards the measurement of competition within the market for mobile services. 1.2 Price-competition as an indicator to determine the intensity of competition As aforementioned the action parameters are divided into four main categories. This is done to isolate the effect of each action parameter concerning towards the process of competition. However, for each single company and the competition on the mobile market it is important to know about the success of the combination of all action parameters, concerning the payoff of the company, as the case may be the result on competition. Here I want to focus on the price-competition to determine the intensity of competition. Price-competition mainly guarantees the orientation of business operations, all based on the economic principal. A market with functioning price-competition can be seen as a necessary precondition to achieve all goals of competition. In reality price-competition does not contain as much relevancy as in theory, which can be explained by the analysis of different market forms (e.g. homogen polypol, heterogen polypol...). Different market forms cause particular situations, where the prices for mobile services are determined. For instance, if there is a high degree of possible cost reduction, the price is influenced by that. Within other market forms the latitude of possible prices, which are generated by the operators, determine the prices of mobile services. Whereas in some cases prices can be found as a result of solidary behaviour of the operators. Furthermore, the action parameter price is not only influenced by the product itself, the phase of the market, the type of company and the market form, including barriers the market offers. It is further influenced by the amount of using this action parameter, which depends on the objectives and the behaviour of the company. Concerning the current situation of the mobile market there are only four main operators, which provide mobile services to the consumer. Because of that it seems to be logical, that the price-competition is not a sufficient precondition to measure the total degree of competition. The amplitude of possible prices for several mobile services is very low as we will see in the following analysis. Thus, an operator with very expensive services would be less competitive and loose business. Nevertheless, prices for mobile services can differ between the four operators because it is no perfect market and very difficult for the consumer to find the cheapest contract for themselves.