Market Structure Analysis of Indian Railway
The report explains the monopoly market structure of Indian railway. In economics, monopoly market structure means a market in which there is only single seller who controls the whole market in selling their products and services. The market has no close substitutes for producing its commodities. Indian railway is considered to be a monopoly market. As Indian railway is the largest rail network in India. It comprises 115000 kilometer of track and 7500 stations and the largest commercial employer which consist 1.4 million employees. The Indian railway is considered to be the largest and cheapest source of transportation and an important source of carrier for bulk goods like steel, iron, coal etc. The report evaluates the monopoly market structure of Indian railway and shows the essential characteristics which are present in the monopoly market like buyers and sellers, price maker, nature of product, short run profits, barriers to entry and exit of firms and non-price competition. The report also compares the Indian monopoly market with the British rail monopoly in order to make their market more efficient in providing their products and services to their customers.
According to Baldwin & Scott (2013), market structure affects all the other important major factors of the market such as number of firms, type of products, barriers to entry and exit of firms, customer satisfaction and competition. The monopoly market means a market in which a single seller controls the entire market and control the price over the product. The monopolist market has no close substitutes for manufacturing its commodities in the market. Indian railway has a monopoly market because it is only the single seller which provides the rail services in India and is owned is by the central government. An Indian railway is considered to be operating for both the short distance and long distance cities and towns. The report analyze Indian railway monopoly market structure with the British metro monopoly market in order to evaluate the market structure and find out the factors which are involved in making the market efficient. The essential features of monopoly market are as follows:
According to Bhanot & Singh (2014), under monopoly market, only single seller control the whole market and set the price and supply of goods and services. Indian railway is the only single seller who provides the rail services in India and the cheapest modes of transportation available to the ordinary people. As the system of Indian railway is controlled by the government of railway ministry which makes it independent and the private participation is not allowed. It carries 20 million passengers and 2 million tons of freight daily. The main source of holding the monopoly market by Indian railway is the capital investment, infrastructure needed, economies of scale and its huge size and its operations (Bowman, 2015). Thus, Indian railway is the only single seller which holds the monopoly market. On the other hand the British rail comprises four railway companies such as Great Western Railway, London, Midland and Scottish railway, London and north eastern railway and Southern railway. The system of British railways is controlled by the joint railways after the nationalization to provide rail services and the monopoly of British rail had four sellers in operating their services to their customers in the country. Thus, the buyers and sellers in Indian railway are single and in monopoly of British railway had four sellers.
Buyers and Sellers
According to Dunne et al. (2013), the nature of product in the monopoly market offer unique and identical products to their customers. Indian railway is the biggest transportation system in India who provides the rail services. It is also considered for carrying the large number of bulks and commodities from one place to another. Indian railways have an advantage of economies of scale which results in makes the only supplier in market for producing their goods and services (Kirzner, 2015). Indian railway is the cheapest long distance transport available for the ordinary people who can afford their reasonable charges and also provide discounts to students who are travelling through rail. But in the monopoly of United Kingdom, British railway offers the differentiated products and services to their consumers. British rail make their services more effective in terms of rail by replacing the steam locomotives by large scale dieselization, resignalling and track renewals, modern marshalling yards, cease of unspecified lines. The British rail also provides many schemes in providing the discount to their customers.
According to Knight (2012), there are strong barriers exist in the monopoly market which makes the hurdles to enter in the market for a new entrant. The government has made the strict rules and regulations to restrict the entry of new entrant in order to protect any loss to society. The barriers like heavy investment, infrastructure requirements and cost requirements are very high in the expansion of the railways which is difficult for a new entrant to enter in the market. Its huge size and operations cannot be easily achieved by the new entrant. . The other factors like trademark, copyrights and patents also create the barriers in the entry of new entrant in the market. The system is controlled by the government which makes it independent and no private participation is allowed (Li, 2010). On the other hand, there are many competitors available for British railway which makes it possible for the new entrant to enter in the market. The new entrant can added as the part of the British metro but it is not possible in the Indian railway. No entrant can be added a new seller in the Indian market. The barriers in the monopoly of United Kingdom can be cross by the new entrant in order to take entrance in the market.
According to Nandan (2010), under monopoly market, single seller control over the supply of the commodities in the market which enable the monopolist to be the price maker to decide the prices of their products and supply of the commodities. But as compare to Indian railway, British railway pricing are controlled by the railway executive of the British Transport Commission. Thus, Indian monopoly makes the single seller price maker to control the price over the product and in monopoly of United Kingdom, pricing are controlled by the British government.
Nature of Product
In monopoly market, the demand for the products and services of the firm is less than perfectly elastic and therefore, the curve slopes downward to the right. According to Rios et al. (2013), the main reason for the downward slopping is the full control of the monopolist in the supply of the commodity. Due to the reason of complete control of monopolist market will make the price changes and demand move in opposite direction. In other words, it can be said that if a price of the commodity increases, the demand will decreases. Thus, the demand curve of monopoly market slopes downward. In monopoly market, profit is maximized where marginal cost is equals to marginal revenue (MR=MC). But the monopoly of United Kingdom states that British railways had the number of competitors available and offer the differentiated products and services can incur the loss or profits in the market. The profit can be divided into long run and short run profits which are as follows:
Long run: In long run, monopolist earns abnormal profits because there is no fear of competition. The single seller control the market and price of the commodities and there is no competitors in the market to avail the services to the customers (Stackelberg, 2011).
Short run: A monopolistic can maximize the profit or minimize the losses by manufacturing that quantity that meet the equilibrium point of curve when marginal revenue is equals to marginal cost. If Average total cost is less than price the firm will earn economic profit and on the other hand if average total cost is more than the market price the firm will incur the losses (Wang, 2010).
Figure: Monopoly Diagram
Source: (Pettinger, 2008)
According to Yang & Cui (2012), non-price competition may be defined as an efforts made by the organization with the purpose to increase its sales and their profitability growth rather through various methods like product differentiation and selling expenses rather than decrease in the price. Under monopoly market, to Indian railway will spend more on advertising and promotion channels to meet the objectives of sales increase and rising profits. Indian railway will spend more on the advertisement and using promotional sources to make their services more effective in serving to their customers. Indian railway can provide discount offers and various schemes related offered to their customers. On the other side, British railway can also use advertising and promotional channels in order to make their services more effective to avail their customers.
Barriers to entry and exit
Conclusion
From the report, it is concluded that Indian railway had monopoly market in which the system of Indian railway is controlled by the government. Indian railway is the largest single network that provides the rail services in India. As in Indian monopoly, there are single sellers who control the entire market and the prices of the commodities. But the monopoly of in United Kingdom states that there are number of sellers available who offer differentiated products and services to their customers. British railways have four sellers and offer differentiated products and services to their customers. The lack of competition in Indian railway does not take serious efforts to bring financial viable system. The import of technology is based on the opinions of the railway board members who cannot be biased. In British railway monopoly, the competition makes the organization more effective in taking the correctives measures for the railway. Thus, the report concludes that Indian monopoly is required to take some measures which are independent in order to make their services more prominent.
References
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