In this blog i will discuss about the 5 economic concepts related to the telecom giant 'Jio'.
1.) Market:
Jio operates in a oligopoly market. A oligopoly market is one in which there are very few players but these firms are very large. Jio's actions are influencing its rivals decisions.
For e.g., the recent merger of Vodafone and Idea was influenced by the ever growing dominance of Jio.
Because of Jio, Bharti Airtel lowered its data tariff by 80%, Idea by 67% etc.
2.) Economies of scale:
Since Jio is a telecom company it operates on huge economies of scale. Economies of scale means as number of subscribers increases, the fixed cost is apportioned over large number of customers and thereby AFC and AC decrease.
3.) Entry barriers:
Jio crated entry barriers by using two very important factors- Product differentiation and Price.
Product differentiation:
Before Jio came into market each and every service provider was talking about calls at lower rate but no one was that much bothered about data services. Jio understood the market need and anticipated that data will be more important in future and it played upon it. It offered free unlimited data services intially and at lower rates later thereby differentiating its product from other existing products.
Price:
Since Jio has huge.economy of scale. Let us see how it created such huge economy of scale. Initially it started giving free sims with free unlimited data to customers and reached a very huge customer base. After this slowly it extended the period for which free data was provided. Finally it introduced various tariffs at low rates and thereby retaining its customer base. Now this huge customer base created huge economies of scale for Jio resulting in lower average cost and enabling them to provide data services at lower prices.
4.) Price discrimination:
Being a new entrant Jio did a huge price discrimination and created disruption in the market. First it gave 4G sims and data services for free to customers to grab a large market share and then gradually increased the tariffs and now offers services at prices lower than other competitors.
It provides various data plans at varying prices.
5.) Price discrimination by self selection:
Price discrimination by self selection means that the customers themselves reveal that they were waiting for price discrimination. The data obtained from here helps company to frame their pricing policies.
In case of Jio when Jio launched its services and gave free data services, the customers responses showed that they were waiting for such offers.
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