Help me out, please!!
The Situation:
Patrick Zuliani is the founder and CEO of Zuliani Telecom, a publicly traded cell phone service provider that is about to start offering service in remote areas across Canada (see grey area in figure 1) following the approval of their application to the Canadian Radio-television and Telecommunications Commission (CRTC). The CRTC was willing to fast-track the approval for Zuliani Telecom to enter these markets as there is often only one provider of wireless mobile in these areas and rural Candians have been complaining about high prices and poor customer service. The CRTC has not yet granted them access to any of the densely populated urban areas of Canada (see yellow area figure 1). Canada's current mobile wireless industry can best be described as an oligopoly where Rogers, Telus, and Bell have over a 90% market share. This means that the market can be potentially very lucrative if Zuliani telecom can strategically secure a foothold in the rural market and create a strong business case to present to the CRTC so that they gain access to the urban market.
The shareholders and the board of directors for Zuliani Telecom are getting very impatient with the current share price of the company and the large capital investments that have been made to enter the Canadian wireless mobile market. The pressure is on Mr. Zuliani to present a strategic plan that will impress the board and show the company's long-term profit outlook justifies the recent investments. Mr. Zulianis friend, Nathan Price, has recommended you based on your outstanding work helping Northern Cottage Living. Therefore, Zuliani Telecom has made you a lucrative offer to consult them during this important time.
Your Task:
Analysis to support urban expansion application to the CRTC
Zuliani Telecom needs to make a quick pitch at an upcoming meeting with the CRTC to help support their recent application to expand into the urban areas of the Canadian wireless mobile market. Using only the data provided and your knowledge of industry concentration measurements, the Lerner index and mark-up factors, the Rothschild Index, and the Dansby-Willig Index, Mr. Zuliani would like you to make a brief and effective argument for why they should be given access to the rest of the Canadian cell phone market including the densely populated urban areas and how this will benefit Canadian consumers. - Zuliani Telecom estimates that the average monthly cell phone bill in Canada is $75 and the marginal cost of providing service to a customer is $20. - The elasticity of demand for the total Canadian cell phone market is estimated to be -1.5. The elasticity of demand for Bell, Rogers, and Telus is estimated to be -1.6. - The Dansby-Willig Index is estimated to be 0.85 for the Canadian wireless mobile industry.
Retail mobile revenue market share in Canada from 2014 to 2019 DOW 125% C 100% % 8% 8.1% 8.2% 9.3% 9.3% 9.8% 0 75% 34% 33.6% 33.3% % 33.33 33.3% 32.5% Revenue share Soul - SH SI - U: - 99 50% B 29.3% 29.3% 28.6% 27.8% 27.8% 28.6% Rele Dece 25% Regi Cana 28.8% % 29% 28.9% 30.7% 29.6% 29.2% % 0% Surv 2014 2014 2015 2016 2017 2018 2019 Bell Group TELUSRogers Other Supi Date Table 7-2 Four-Firm Concentration Ratios and Herfindahl-Hirschman Indexes for Selected U.S. Manufacturing Industries HHI CA Industry (percentage) Breweries 90 Distilleries 70 Electronic computers 87 Fluid milk 46 Furniture and related products 11 Jewelry (excluding costume) 29 Men's and boys' cut and sew apparel 27 Motor vehicles 68 Ready-mix concrete 23 Semiconductor and other electronic components 34 Snack foods 53 Soap and cleaning compound 47 Soft drinks 52 Women's and girls' cut and sew apparel 20 Source Concentrations Ratios: 2007, U.S. Bureau of the Census 2012. , , None The U.S. Bureau of the Census approximates the HHI by using only data on the top 50 firms in the industry NA 1,519 NA 1,075 62 347 324 1.744 313 476 1,984 848 891 174 Table 7-3 Market and Representative Firm Demand Elasticities and Corresponding Rothschild Indexes for Selected U.S. Industries Own Price Elasticity of Market Demand Rothschild Index - 1.0 0.26 Industry Food Tobacco Textiles Apparel Paper Printing and publishing Chemicals Petroleum Rubber Leather -1.3 -1.5 -1.1 -1.5 -1.8 -1.5 -1.5 -1.8 -1.2 Own Price Elasticity of Demand for Representative Firm's Product -3.8 -1.3 -4.7 -4.1 -1.7 -3.2 -1.5 -1.7 -2.3 -2.3 1.00 0.32 0.27 0.88 0.56 1.00 0.88 0.78 0.52 SOURCE: Matthew D. Shapiro, "Measuring Market Power in U.S. Industry." National Bureau of Economic Research, Working Paper No. 2212, 1987. Table 7-5 Lerner Indexes and Markup Factors for Selected U.S. Industries Industry Lerner Index Food 0.26 Tobacco 0.76 Textiles 0.21 Apparel 0.24 Paper 0.58 Printing and publishing 0.31 Chemicals 0.67 Petroleum Rubber 0.43 Leather 0.43 Markup Factor 1.35 4.17 1.27 1.32 2.38 1.45 3.03 0.59 2.44 1.75 1.75 SOURCE: Michael R. Baye and Jae-Woo Lee, "Ranking Industries by Performance: A Synthesis," Texas A&M University, Working Paper No. 90-20, March 1990; Matthew D. Shapiro, "Measuring Market Power in U.S. Industry." National Bureau of Economic Research, Working Paper No.2212,1987. Industry Dansby-Willig Index Food 0.51 Rubber 0.49 Textiles 0.38 0.47 Apparel Paper 0.63 Chemicals 0.67 Petroleum 0.63 *Optional: You may wish to use your knowledge of Bertrand Oligopolies to make a case that Bell, Rogers, and Telus might be colluding in the Canadian mobile wireless market. Retail mobile revenue market share in Canada from 2014 to 2019 DOW 125% C 100% % 8% 8.1% 8.2% 9.3% 9.3% 9.8% 0 75% 34% 33.6% 33.3% % 33.33 33.3% 32.5% Revenue share Soul - SH SI - U: - 99 50% B 29.3% 29.3% 28.6% 27.8% 27.8% 28.6% Rele Dece 25% Regi Cana 28.8% % 29% 28.9% 30.7% 29.6% 29.2% % 0% Surv 2014 2014 2015 2016 2017 2018 2019 Bell Group TELUSRogers Other Supi Date Table 7-2 Four-Firm Concentration Ratios and Herfindahl-Hirschman Indexes for Selected U.S. Manufacturing Industries HHI CA Industry (percentage) Breweries 90 Distilleries 70 Electronic computers 87 Fluid milk 46 Furniture and related products 11 Jewelry (excluding costume) 29 Men's and boys' cut and sew apparel 27 Motor vehicles 68 Ready-mix concrete 23 Semiconductor and other electronic components 34 Snack foods 53 Soap and cleaning compound 47 Soft drinks 52 Women's and girls' cut and sew apparel 20 Source Concentrations Ratios: 2007, U.S. Bureau of the Census 2012. , , None The U.S. Bureau of the Census approximates the HHI by using only data on the top 50 firms in the industry NA 1,519 NA 1,075 62 347 324 1.744 313 476 1,984 848 891 174 Table 7-3 Market and Representative Firm Demand Elasticities and Corresponding Rothschild Indexes for Selected U.S. Industries Own Price Elasticity of Market Demand Rothschild Index - 1.0 0.26 Industry Food Tobacco Textiles Apparel Paper Printing and publishing Chemicals Petroleum Rubber Leather -1.3 -1.5 -1.1 -1.5 -1.8 -1.5 -1.5 -1.8 -1.2 Own Price Elasticity of Demand for Representative Firm's Product -3.8 -1.3 -4.7 -4.1 -1.7 -3.2 -1.5 -1.7 -2.3 -2.3 1.00 0.32 0.27 0.88 0.56 1.00 0.88 0.78 0.52 SOURCE: Matthew D. Shapiro, "Measuring Market Power in U.S. Industry." National Bureau of Economic Research, Working Paper No. 2212, 1987. Table 7-5 Lerner Indexes and Markup Factors for Selected U.S. Industries Industry Lerner Index Food 0.26 Tobacco 0.76 Textiles 0.21 Apparel 0.24 Paper 0.58 Printing and publishing 0.31 Chemicals 0.67 Petroleum Rubber 0.43 Leather 0.43 Markup Factor 1.35 4.17 1.27 1.32 2.38 1.45 3.03 0.59 2.44 1.75 1.75 SOURCE: Michael R. Baye and Jae-Woo Lee, "Ranking Industries by Performance: A Synthesis," Texas A&M University, Working Paper No. 90-20, March 1990; Matthew D. Shapiro, "Measuring Market Power in U.S. Industry." National Bureau of Economic Research, Working Paper No.2212,1987. Industry Dansby-Willig Index Food 0.51 Rubber 0.49 Textiles 0.38 0.47 Apparel Paper 0.63 Chemicals 0.67 Petroleum 0.63 *Optional: You may wish to use your knowledge of Bertrand Oligopolies to make a case that Bell, Rogers, and Telus might be colluding in the Canadian mobile wireless market
