Importance Of Oligopolistic Characteristics

Importance Of Oligopolistic Characteristics This paper focuses on the importance of oligopolistic characteristics in the global container shipping industry. It is difficult to examine this market although containerization has standardized the shipping industry. My approach to meet this controversial issue is to divide between three levels: the industry, alliances and the trade level. In my investigation I also use a graphic explanation, the concentration level of the industry, the cobweb model and the kinked demand curve. The results allow us to determine how influential is the concentration level, the competition and alliances in the container shipping industry. Michail Archontakis (377602) Economics 7 December 2012 INTRODUCTION The global container shipping industry can be characterized as an oligopoly. Moreover, we can say there are few sellers and the provided services or products are quite similar. It is necessary to examine the market structure in three main levels: the industry, the alliances that exist and the trade level. The market is characterized by globalization. As a result, there is a need to satisfy customers demands and invest in resources as well as in the development of the new technology. So we can see the growth of the world economy and the world trade. Shipping companies have two choices, form an alliance or the other one is mergers and acquisitions. I will also use a graphic explanation to describe the way and how the industry has developed over the past years. Lastly, the purpose of this assignment is to introduce the importance of the oligopolistic characteristics in the global container shipping industry. THE INDUSTRY The market has mainly consisted by containers and containerization has developed it in a more standardized approach. In the global container shipping industry, we could meet collusions which are called as shipping conferences. We all know that their main interest is to fix freight rates in certain routes and form barriers, in the entry of new firms. Pricing in the industry means under the table agreements between shippers and carriers. By this way, they can achieve economies of scale which can lead to a small number of firms (Marlow and Nair, 2008). As stated by Haralambides in 2000 two factors are crucial in the understanding of conference freight rates: unit values and stowage factors. After the abolition of the anti-monopoly privilege of freight conferences (18 October 2008, Regulation 4056/86), and due to the trend of growing consolidation. The market is developing into a more collusive market, where operational agreements becoming more and more vital. The market has become more concentrated, and the smaller operators conduct a market share of less than 1% per each. As we can observe from table 1 above top 10 carriers, have a market share of 63.5% (www.alphaliner.com). The market share of the top ten carriers was 49.3% in 2000 (www.alphaliner.com). There is a tremendous increase in market share as well as in total TEUs. Moreover, few firms fit most of the market power and probably can determine in a high level the industry and the chief shipping routes. They can create entry barriers and also make agreements on the freight rates. It is especially valuable for firms to cooperate and some state acting like monopolists. As a result, each firm must be aware of the other players actions. World Ranking of Maritime Shippers, by Shipping Capacity Source: Alphaliner This oligopolistic characteristic makes the industry more complex and needs to cover many factors. Moreover, to deal with customers international requirements, the development of ever larger container ships, upgrades in technology, increasing competition and high consolidation. Leading to globalization where few firms dominate the leading trade routes and to the event of multi-trade strategic alliances. This change is also notable for the customers. Furthermore, they can now have more requirements and benefits. Nowadays, they can request faster shipping, more frequent services and lower costs as well as to know at any time the exact location and condition of their cargo. Container shipping companies have become more unified with new technologies and also have improved the contribution significantly quality. We now have larger vessels, and they can benefit from economies of scale. Surely, the oligopolistic environment has raise competition and has expanded world economy as well as world trades. ALLIANCES Shipping companies have two choices form a strategic alliance and the other one are the acquisitions and mergers. In order to reach economies of scale, scope and network alliances have developed in two ways. Moreover, there are core alliances with international partners and the other one is multi-consortia networks of slot. This is a general connection in oligopolistic markets and of considerable importance. An alliance helps to gain greater market shares and contain more effectively the trade routes as well as, the capacity. There are five key ideas in the movement of alliances in the global container shipping industry. Furthermore, it can do more effective wider geographically routes. Secondly, they can create their ships in a more global scope. The risk is less because it is shareable now. They can provide more repeated services to their customers, meaning more frequent schedules. Lastly, economies of scale become more apparent, and there is also an increase in the size of the ships (Sato, 2002). It is noteworthy to analyze the three of the most powerful alliances over the past years. Furthermore, these three alliances started with an agreement on collaboration for east-west trades and then extended to north-south services. The first alliance we will examine is New World Alliance. It includes mainly APL, MOL and HMM. Its overall capacity in TEUs is 1.161.468 and owns 282 vessels (alphaliner.com). Imagine that in 2000 the capacity of this alliance was 325.487 and the number of vessels 90 (Midoro and Pitto,2000). As we can see, it right increased its market share, and this is highly influential in oligopolistic markets because it can alter the market as well as conduct more properly the capacity. Another notable alliance is the Grand Alliance. In February 2006, after PO exodus the new Grand Alliance formed by Hapag-Lloyd, OOCL, and NYK Line. Its overall capacity in TEUs is 1.187.607 and owns 288 vessels (alphaliner.com). In 1996, it owned only 255.705 TEUs and 72 vessels (Midoro and Pitto,2000). Grand alliance manages twelve services in the transpacific trade. Lastly, this alliance has showed the most reliable configuration comparing to the other two alliances. The greatest alliance is CKYH with key partners Hanjin, Yang Ming, K Line and COSCO. It counts 1.548.508 TEUs and 400 vessels (alphaliner.com). It manages eight services on the Europe Asia route which has the largest capacity in TEUs. Surely, this alliance has a significant market share and also is highly competitive. Of course, alliances have a significant impact in the market share, but it is difficult to cooperate as the size of the group increases. They choose to act like monopolists because they can affect the price. Competition makes contrary to other firms to play or join in the market. This characteristic is of particularly importance in order to survive in this tough market where overcapacity and decreasing demand may be serious problems. Firms may find many reasons why to join an alliance: strategic reasons, operational reasons, in order to increase or decrease connectivity and capacity, to raise or remove a service, to merge or demerge services and to provide slots for charter. (Panayides, 2011) TRADE LEVEL We will examine the trade level of two routes, Black Sea Far East and US trade. Moreover, we will focus on the trade lines with port ranges at both ends (Brooks, 2000). In the route Black Sea Far East the top seven firms have a market share of total 89%, so the other firms contain only the rest 11%. Surely, there is an exceptionally high percent of concentration in this trade route. Moreover, MSC holds 23,15%, Maersk Line 20,33%, CMA-CGM 13,81%, Zim 13,55%, CSAV Norasia 11,64%, Hapag Lloyd 4,99% and K Line 1,53% (www.americanshipper.com). We can conclude that a tight oligopoly exists in the trade line of Black Sea Far East. The production rose, and the price decreased because the firms now hold strong shares and perform more like monopolists. Furthermore, it is difficult for new firms to enter this lane. The other trade line that we will examine is US which is more complicated than the previous one. Moreover, the top ten firms fit nearly a 65% of the total market share. So we can speak also that in the trade line exists an oligopoly, but the firms are much more and carry less market shares. Maersk Line market share is 15,27%, Evergreen 7,67%, Mediterranean Shg Co 7,20%, Hanjin 6,54%, APL 6,18%, Hapag Lloyd 6,05%, COSCO Container Lines 4,28%, OOCL 4,26%, NYK 4,04% and China Shg C.L 3,90% (www.americanshipper.com). A close exam of this market shows us that competition is greater, but the market is larger and remarkably attractive to new firms. As a result, if we operate efficiently the oligopolistic characteristics firms will increase their market shares, and it will be more difficult for new firms to enter the market. Of course, it is difficult to cooperate efficiently when the size of the group increases, but can handle more reasonable the capacity and the competition something that is particularly powerful. After analyzing these two different trade lines, we understood the meaning of the existence of the oligopolistic characteristics. Moreover, capacity can be handled more efficiently and control competition by increasing your shares. GRAPHIC EXPLANATION OF THE IMPORTANCE OF OLIGOPOLISTIC CHARACTERISTICS IN THE GLOBAL CONTAINER SHIPPING INDUSTRY Table 2I think a better explanation can be given by using a graph to indicate the importance of the oligopolistic characteristics in the global container shipping industry. Moreover, we know from theory that in perfect competition demand curve intersects Marginal Cost curve at the market price P* and it supplies quantity Q* (Mankiw, 2011). The firms in this graph are price takers because there are no entry barriers. Now let see what an oligopolistic firm will make. It will reduce quantity to Q0 and at the same time will increase the price P0 until Marginal Cost equals Marginal Revenue. However, a deadweight loss (consumer and producer) can be created, meaning welfare losses to the economy. Lastly, we can observe a surplus for the firm as an oligopoly profit. This result can be represented in the global container shipping industry by selling at greater prices and offering lower services. They can use smaller containers, slower services as the market becomes more oligopolistic. Secondly, firms may try to increase their market power or insert entry barriers. These two can cause to collusion practices. Moreover, greater concentration can create collusions and contract coordination costs. Nevertheless, there are also benefits from the increase in concentration. A firm may increase its profits by taking market power from its opponents. This action can cause sensitive to the firm to provide a better product or service. In the shipping industry, a better product or service means to provide larger containers or to invest in research and development. Moreover, a firm may invest in order to keep consumers loyal to her. So companies can behave more competitively. A better explanation for the price and quantity can be given by the cobweb model. The cobweb model or cobweb theory can explain the cyclical demand and supply the container shipping industry. Moreover, when the price is high P1 the quantity is low Q1 and lower than Q2. In the next period (Q2-Q1) will reduce the price to P2. However, now Q2 is greater than Q3 meaning (Q2-Q3) will raise the price to P3. So we can conclude that when there is excessive demand price will increase and fall when there is excessive supply. Concluding, demand and supply, are both quite flexible in the global container shipping industry, specifically in an annual base. The importance is that freight rates are flexible and negotiable between shippers and carriers. Marginal cost can be considered remarkably low. Lastly, in short-run when a rapid growth may occur in the demand can be faced sufficient. The kinked demand curve can describe the behavior of the firms in oligopoly market. Moreover, the model predicts that firms do not compete in price and try to keep the price stable over time. However, in short-term there may be price fluctuations and firms may try to gain some extra market power. The importance is that firms will use other methods to increase market share than price competition. Furthermore, they can provide higher quality, more frequent services and other upgrades to keep their costumers loyal. As the market is acting like an oligopoly, it has resulted in two main trends. First, there has been an increase in container ship sizes. Secondly, there has been an important advance in container throughput. Lastly, it has reduced the costs of transportation and local economies have been transformed to global economies. CONCLUSION The global container shipping industry is primarily an oligopoly (few players which offer similar services or products). I tried to introduce the importance of the oligopolistic characteristics in this market. Moreover, I noticed that large alliances control the majority of the total market share and also high concentration exists even in the trade routes. Highly concentrated markets experience in many occasions to collusions or cartels. It is particularly dangerous due to anti-trust laws, especially after the abolishment of the anti-monopoly immunity. However, such agreements are extremely valuable for the participating firms. Moreover, economies of scale can develop by using larger vessels and also provide superior quality of services. It is better off to combine, but it is extremely difficult especially when the size of the group increases. From the graphic explanation, we concluded that it is helpful to produce relatively small quantity and push prices above marginal cost. Nevert heless, it is up to the firms if they are going to have negative or positive results. In my opinion, the oligopolistic characteristics in the global container shipping industry led the market to grow and become competent to handle the occurrence of overcapacity and increasing fuel costs. Probably in the future stronger alliances and fewer firms will occur in the market, which is extremely influential in order to thrive and remain in such a demanding industry.

Jonhson Matthey case study analysis teacher guide Essay

Suggested resources & activities related to PEST analysis and Johnson Matthey Full Johnson Matthey case study MP3 of the Johnson Matthey case study External influences PowerPoint Johnson Matthey crossword Johnson Matthey word search Suggested timings for the session 10 mins 5 mins 5 mins 10 mins 20 mins 10 mins Starter e.g. Johnson Matthey crossword Use the external influences PowerPoint to discuss the topic Read the case study Questions Task – mind map What have you learned? Answers to questions 1. What does PEST stand for? PEST stands for: †¢ Political (includes legal) †¢ Economic †¢ Social (includes environmental) †¢ Technological 2. Describe what is meant by the ‘external business environment’. The external environment refers to those things outside of the operations of an organisation which impact upon it but over which the business has no control. 3. Analyse why PEST analysis is used by firms. PEST analysis is used by firms to assess the external business environment in which they operate. Managers and directors can then make decisions on their findings. PEST analysis therefore will inform any new objectives being set and the marketing strategy for the firm. 4. Evaluate the impact that the 2008 banking crisis had on Johnson Matthey. The 2008 banking crisis which lead to the recession: †¢ Meant a fall in demand for its products †¢ Increased efficiency within the company -reducing the use of natural resources and decrease waste through lean production techniques. †¢ Efficiencies made the company more sustainable – saving the company money whilst at the same time conserving the planet’s valuable natural resources. What have you learned? Expected learning is likely to include: †¢ Definition of the external business environment †¢ PEST factors †¢ Use of PEST analysis to develop marketing strategy †¢ How firms respond to external factors †¢ Examples of these factors

Is Money the Most Important Thing? Essay

Nowadays, we are living in a world where everything turns around money and luxury. People do not realize that we can find more things which are more important for our lives and happiness. Some years ago, other important things were to spend quality time with the family, talk to each other about important thing in order to be always together and be informed about what is happening to the most important people in the society: your family. To different people money is important in many ways. Money is used to do a lot, you use it to buy a house so you have somewhere to live instead of living under a bridge, you use it to keep your car running properly, and without money a lot of people wouldn’t be happy. Without money people cannot live healthy. You need money to buy food, clothing, and personal hygiene products. To me money is less important as long as I have enough to get food for my family, a roof over my head, clothing for my family and myself, power to my house, and money to ride the bus. I am completely happy and that is what is important about money to me. see more:muet essay It would be nice to have some extra here and there but as long as my family and I can survive that is all that matter. How would you pay your bills if you didn’t have money? How would sick children get the help they need without money? Both of these questions are questions that have been a big deal in my life. The answer to each is you would be able to. Even if you didn’t have money and you needed assistant – that still involves someone donating the money. Money is an important aspect to everyone in this stuff called life. Then again to other people money might be important in other ways. It all depends on who we are talking about when we ask the question â€Å"How important is money?† Without money we wouldn’t be able to go to school and prepare for life or get college degrees and further our educations. We wouldn’t be able to pay for medications that help heal us of any diseases or pain. I do subscribe to the notion that money isn’t everything but I also believe that it is a major, critical facet of life today. Some people would like to have money, not to be a rich  person, but to have the minimum things to live worthily. Even if money is important to have a good life and without it we cannot do anything, it is not the most important thing. There are other characteristics that are more important in people, such as, what other people are inside themselves. Also, the idea of getting power because of having money is an actual problem in our societies, because many people grow up with that idea, and the more money you have, the more money you want to get. This action creates selfish people who think that all their problems can be solved thanks to money but in the real life, things are very far from this concept of life. People from real life have to fight for getting things, for being successful and for being happy. So it is important to teach people while they are growing up the real value of the things that are around themselves and how they can face money problems and the main meaning of this overvalued component in the present world. None can deny the importance of money in life. However, whether or not it is actually the only thing people are interested in today is much of controversy. Some people believe that money ca n buy everything when the others assert that it cannot. From my point of view, there are a lot of achievements rather than money although I can live without it. It seems to be meaningless for me to come in for a well-to-do life without endeavor for any reason. Perhaps, for me, money is not able to buy happiness. Not only has the value of money changed, but also its importance. The importance of money has become so essential for life, that you could not survive without it. You could not even buy something to eat. You would end up being a poor homeless person. Even if you try harmonizing with the nature to survive, it would be almost impossible nowadays, except if you are living in a tribe. Tribes have learned to live naturally and have adapted to the nature, while industrial countries have invented artificial stuff for everything. Money is one of the most important things in our lives. Even if we haven’t noticed yet, living without it would be literally inconceivable. Money is very important because of its value in daily life. Without money, we do not have accommodation, food, and clothes which are considered the basic necessities. In most developing countries, children cannot go to school when their parents do not have money. They have to do manual works in bad conditions and university is definitely a far-away dream. Money seems to be the most important issue for those. For those of the middle class, money  gives a comfortable life. The most important advantage of being rich is that your health will be protected well when you have a lot of money. It is true for every social system. A millionaire can pay a lot of money for the best hospital, best doctor and best technology while a poor unemployed woman mainly depend on social subsidies with cheapest medicines. If you do not have enough money, please wait without any requirements. Life has never been equal, particularly between the rich and the poor in the society. Money has become a very crucial aspect of living. It allows us to provide ourselves with the basic needs of life as well as forcing us to make realistic choices and place priority on our needs before our wants. But money has changed society a lot. The people who do not make too much, are not t oo happy. However, those who have money are often unhappy. They can never get enough. Everything that they have needs to be updated and when they get the item it’s already old so they end up replacing it. For this reason the rich never get to sit back and enjoy what they have. They are too busy buying. For most people in our modern world, money is the first thing, and sometimes the only thing that measures success in their life. Money can buy power. Money can buy fame. Money can buy time. Sometimes money can even buy a life. Thus money has become the first common goal for everybody. However, there is something else that can be the measurement of success in life. For example, the common goal in people’s life is to be peaceful and happy. It might be having a warm family and children, having lots of friends or maybe just having someone who truly loves you. Being the richest man in the world does not mean you are the happiest man in the world, although money can buy you happiness sometimes, but not always. If we could all appreciat e the way life is, the fun, and the beauty I think the world would be better. If people weren’t power hungry maybe we’d have a lesser demand for money. Those people who is money hungry and power hungry need to relax. Money can’t buy you happiness. These individuals need to understand that.

The Wild Beast by Peter Mass - 1286 Words

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