Leisure Market Structures

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Spectator Sports: Monopoly

  • Firm (Team) have monopoly over spectators
    • Because many people support only one team
      • Which means there are no substitute products
        • Hence demand is inelastic.
      • Spectators can only buy tickets and merchandise from the firm/team. One seller=Monopoly
      • Firms are price makers.
    • X  inefficiency as no competition so AC is higher than it should be
      • Productively inefficient as no competition.
      • Allocatively inefficient as P>MC
  • Have ability to make LR profits provided they have enough fans
  • They price discriminate
    • Different prices depending on Age, Home/Away, Quality of seat etc.
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Spectator Sports: Monopolistic Competition

  • Spectator Sports market lacks MonComp features
  • Spectator Sports as a complete market is slightly MonComp
    • As each sport has its own differentiated submarket
  • Inability to earn LR profit
    • But profit maximisation is irrelevant as utility maximisation (i.e. Winning) is over-riding objective.
      • THESE POINTS ARE NOT VERY STRONG
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Spectator Sports: Oligopoly

  • High concentration ratio in BPL
    • Top 4 dominate league
      • Evidence:
        • Significant share of total revenue in UK market
        • Most successful in terms of trophies
  • Significant non price competition in worldwide market
  • High barriers to entry;
    • Continued success yield large financial rewards
      • I.e. Large sponsorship deals and advertising revenues
        • Leads to buying better players=more success
    • Almost perfect information reduces barriers
    • New entrants must win leagues and competitions to reach the top.
  • Collude to provide events
  • Compete to sell advertising space and sponsorship rights.
  • Perfect oligopoly as homogenous product.
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Spectator Sports: Contestablility

  • High contestability at the bottom level
    • Anyone can form a local/amateur team
  • Extremely low contestability at higher levels
    • Due to difficulty in achieving and reaching the higher levels from the bottom
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Airline Market: Oligopoly

  • High Concentration Ratio
  • High Barriers to Entry
    • Cost of Aeroplanes
    • National Airlines (incumbent firms) are subsidised
    • Large economies of scale
    • Purchasing: Fuel
    • Technical: Larger Planes
    • Limited number of takeoff and landing slots
    • Number of licenses for any route is limited
  • Product Differentiation
    • Low Cost vs. Scheduled
  • Non Price Competition
    • Quality of service
    • Legroom/Meals etc.
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Airline Market: Monopolistic Competition

  • Very Competitive
  • Information is readily available
  • High contestability means abnormal profits likely to be competed away reasonably quickly
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Airline Market: Contestability

·      Low cost airlines proof of contestability

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Holiday Market: Oligopoly

Package Holidays

  • High Concentration Ratio
  • Product Differentiation
    • Destination
    • Quality
    • Advertising
  • High Barriers for Entry
    • Strong Brand
    • Vertical Integration
    • Economies of Scale
  • Price Maker
    • Price Wars
    • Kinked Demand Curve
    • Mature Market- Increase Market share by reducing competitors
    • LR, reduce P leads to reduce profit leads to increase in productive efficiency as they try to reduce cost
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Holiday Market: Monopolistic Competition

Specialist Holiday

  • Small firms, low concentration ratio
  • Low barriers to entry
    • Low advertising costs
    • No vertical integration as firms are too small
    • No economies of scale
  • Products very differentiated
    • Specialist
      • Demand price inelastic, due to few direct substitutes
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Holiday Market: Contestability

·      Anyone can become a small agent but hard to be an important player

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Cinema Admissions: Oligopoly

  • High concentration ratio
    • 5-firm concentration ratio is 74%
    • Small firms differentiate by catering for niche markets
  • Similar product - showing movies
    • Differentiate by offering;
      • 3D films
      • Late night screenings
      • Range of food and drink
  • High amount of non-price competition
    • Schedules of screening
    • Quality of facilities
    • Food and drink
  • Some price competition
    • High price competition where chains are in close proximity to each other
  • Some barriers to entry for large firms
    • Economies of scale
      • Managerial
      • Financial
      • Marketing
    • Good provision of information
  • Large firms can make SR and LR profit
    • Due to high barriers to becoming a large cinema chain
    • However this can be reduced, as cinemas face competition not only from other chains but also from other media and leisure activities
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Cinema Admissions: Monopoly and Contestability

·      Have a local monopoly in some regions

Contestability

·      Low contestability

o   As barriers to entry are high

o   Hit and Run tactics cannot be used

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Television Broadcasting: Oligopoly

  • Analogue TV has 2 large firms (BBC & ITV) plus Channel 4 & 5
  • Digital TV is still oligopoly due to amount of other firms
  • Product differentiation
    •  Genre
    • Timings
    • Schedule
    • HD
  • High Barriers to entry
    • Vertical Integration
    • Economies of Scale
    • High Sunk Costs
  • Price Maker
    • Potential for Price Wars
      • Some firms ban other firms from distributing their programs
  • Some collusion from scheduling
  • Some scheduling competition i.e. The Voice and The X Factor
  • High Non Price Competition
    • Audience Share
    • Advertising
    • Sponsorship
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Television Broadcasting: Monopoly

  • Similar product
  • Subscription/ PPV
  • High Concentration Ratio. One firm monopoly: BskyB
  • High Barriers to Entry
    • Vertical Integration
    • High Economies of Scale
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Television Broadcasting: Monopolistic Competition

  • Large number of small firms in niche markets
    • E.g. Religious/ International/ Home Improvement
  • Low barriers to entry
    • Switch from analogue to digital made it easier to set up new channels
    • Cheap Programming
      • Quiz Shows
      • Repeat of old series
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Television Broadcasting: Contestability

  • High in niche market
  • Low in generic market
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