merger

i did an article of the competition between mediacorp and mediaworks for my economics last sem.

ok, not really did but mostly cut and paste (product of singapore's education system).

so i have no originality, sue me.

personally, i think it's too early to merge. just stop the undercutting! but hey, i'm not THE shareholder.

i really love economics but what i had studied is just the basic. if being asked to learn more, i wonder if i'll still love it.

well, if i still have the same tutor, i dont mind learning more.

here it is...forget about the grammar, tense and such. i'm not that proficient in english.

Summary

Singapore’s TV market used to be dominated by a single player, MediaCorp. After liberalisation, both the original player, MediaCorp and the new player, SPH, have suffered losses. This is not because the TV market is a natural monopoly and it is better to have only one player in the market as some people have claimed. It is because of their overly enthusiastic behaviors in pricing and bidding, and the switch from the familiar monopoly to an unknown duopoly.

Analysis

The local TV market used to be a legal monopoly and when the government liberalised the market, the market had become an oligopoly and in this case, a duopoly since only 2 players are involved. The entry of a new player also shifts the demand curve of MediaCorp’s advertising airtime to the left. This decrease the quantity at which marginal revenue equals to its marginal cost, which leads to a lower maximum price that the company can charge for its advertising airtime.

Game theory can be used to study their strategic behavior. In order to gain a stronghold, among the strategies that the new entrant SPH employed, one of them is to under price the advertising airtime. Based on the kinked demand curve model, the incumbent also followed the price cut in order to preserve its customers base.

Since both stations are suffering from losses, this means that the advertising airtime price that they charged is below their average total cost. It also means that they are not taking the best possible action by undercutting each other. The Nash equilibrium is not achieved yet but given more time to stabilize, the strategic equilibrium, would be achieved.

The concern with a duopoly is that the players might have a collusive agreement to decrease the advertising airtime and raise price, and that would defeat the government purpose of liberalizing the market.