Economics: Telecommunications Industry - Research Paper Example

Contents Contents Introduction: 2 Shifts and price elasti of supply and demand: 3 Positive and negative externalities: 5 Wage inequality: 6 Fiscal policy and Monetary policy: 7 References 10 Introduction: Telecommunication industry deals with the electronic system along with its activities and services for the purpose of transmitting messages through telephones, cables, radio, Television. Behind the striking growth of the telecommunication industry the major reason would be technological improvement (it can be the use of optical fibers which can carry a large volume of data and likely to be user-friendly or something like communication satellites) and market competition. The introduction of mobile network played a crucial role for the betterment of the industry and helps it to achieve the growth rate. All the leading companies are now keen to invest in this prosperous industry. For all these reason this industry is also creating huge amount of employment opportunity across the globe (economywatch.com, 2009). It has a great impact on a country’s economy including both microeconomic as well as macroeconomic effects. The social impact is gaining importance day by day with the popularity of social networking sites and SMS. In cultural terms it has raised the availability of music and films to the general mass. Telecommunication has also changed the medium through which people receive their news. A study of US citizens shows that people get their news from TV or radio rather than by news papers. The benefit of the use of internet is also known to everybody by now. In these several ways telecommunication industry helps the world to engulf the barrier of distance that exists among people. Shifts and price elasticity of supply and demand: Shifts in demand or supply of a particular commodity occur due to several factors affecting the supply and demand schedule and in the telecommunication industry there exist some factors that can shift the supply and demand schedule upward or downward depending upon the nature of impact. Changes in income, changes in price of other commodities, changes in people’s expectation can influence the demand where as discoveries, introduction of new technologies, changes in input supply can alter the supply schedule directly or indirectly. For example innovation of better and improved technology will help the industry to connect their subscriber in cost that is lower than the previous. More people will demand it leading the demand curve to shift upward and based on improved technology they would be able to serve larger people causing a shift to the supply curve (Amato J D, & Morris S 2002). Price elasticity of demand and supply is a measure of responsiveness of quantity demanded or supplied respectively to a change in the price of the same good. It is equal go the absolute value of the ratio of percentage change in quantity demanded or supplied to percentage change in price with the same. Here in our context of discussion is about the telecommunication industry and like other industries the telecommunication industry does have some factors that affect the price elasticity of demand and supply. The nature of the commodity is one such factor. Nowadays with growing business and industries all over the world telecommunication has become a necessary good. So like all other necessary goods it also has a comparatively less elastic demand. But in less developed countries where industrialization has not taken its desired pace telecommunication can be considered as a luxury. So for them the demand will be more prone to change with price variation. Another point can be availability of substitutes (Wesolowski 2002). It is hard to get a substitute of telecommunication. So its demand is less elastic. Sometime print media acts as a substitute of telecommunication but it can not be a perfect substitute as this has several uses. There is also less possibility of postponement of the usage of telecommunication services. For that reason also it can be less elastic. But there are reasons where it can be a bit more elastic when it comes to demand. For example this particular industry has multipurpose use. We can use telecommunication for business purpose, for gathering knowledge, for personal contacts or for swift communication. As it has got so many usages so it is easy to cut down at least few of them when price increases. There can be another aspect of complementary goods. Some goods are jointly consumed. For telecommunication mobile phone and SIM card can be complementary goods and the demand of one depends upon the elasticity of demand of the other good. It can also depend on the income distribution of the particular country. If the number of rich people are more then they will be least affected by small price changes but low income group will certainly take it into account when they make their demand preferences. Positive and negative externalities: Externality is basically the effect of a decision by consumers and producers that has an impact on the third party who is not actually the part of the transaction. Now depending upon the nature of the effect we can distinguish that whether it is positive or negative externality. It also depends on the concepts of social benefit and social cost. If the effect is beneficial for the third party it is certainly positive externality where as if the third party has to incur some kind of cost then it ahs to be negative externality. Water and air pollution, housing development on green belt area, congestion, anti social behaviour- all are negative externalities and human resource development, research and development in the industry, building roads are positive externalities. In a market economy however if one market participant affect other without any kind of compensation paid then it is externality. Here parties other than the primary participants (buyers and sellers) are affected. Recently a number of externalities have been identified which are exclusively associated with network market. It is called network externality. Rohlf in 1974 first discussed these externalities in telecommunication industry. Afterwards he was followed by Kats and Shapiro. In modern information society the importance of real and virtual network is growing steadily and we can no longer ignore the consequences of the effects (Wesolowski 2002). Positive network externality in telephones for example can be that, if there exist more subscribers to a network then more people can be contacted. So the benefit of the subscriber connected to such a network actually depends upon the number of already existing subscriber. The user can maximize their utility jointly. The marginal utility of adding one more customer is very high. Negative externality on the other hand can be the instance when a network of computers or telephones becomes overloaded. Users incur a cost for this congestion in the network and the utility level of these users certainly diminishes. But fortunately for telecommunication negative network externality is rare or in other words not so common to find. So we can easily conclude to the point that telecommunication industry adds to the social benefit rather than the cost. Wage inequality: Inequality has existed in wide range of societies since long and its nature causes and roots are always considered to be open for debate. A country’s economic background, its political concentration and individual’s ability all are involved in creation of economic inequality. However Wage Inequality is one of the emerging problems of modern world. Wage inequality comprises of all disparities in the distribution of wage or payment one receives for his work. This is considered to be a major cause of economic inequality within market economies. When it comes to telecommunication industry there is an article paper by Rosmary Batt entitled as “Explaining wage inequality in Telecommunication Services” (Batt 2001). In this paper she examined the problem o wage inequality among service as well as sales sector. She also pointed out the importance of unionized labour force and management support in shaping the sharp variation in wages. She used 1988 survey of nationally representative sample of 354 sales and service sector in the particular industry Her findings emphasized that business strategies of customer segmentation and human resource explain the wage inequality in telecommunication in a better way than by human capital (Dewan, 2008). In recent times the issue of fairness in wage is a cornerstone in the policy implementation of US president Obama. As far my own opinion is concerned I do consider the consequence of globalization responsible for rising wage inequality world wide. It generates an unbalanced outcome that gives birth to wage inequality as well as job vulnerability. A study by International labour force has confirmed that this is not only true for US workers but workers of some 83 countries across the globe and that comprises of more than 70% of the world population. A study named Global Wage Report 2008 2009 emphasized that since 1995 the gap between the highest wage and the lowest wage has been widened for all those countries for which data are easily available (Autor 2005). I personally believe that developing nations suffered from these phenomena more than the developed nations. Fiscal policy and Monetary policy: In economic terminology fiscal policy is the use of Government spending and revenue collection to influence the economy of a particular nation. There are two main instrument of fiscal policy- Taxation and Government spending. Just like the way it has an impact on every other part of the economy it also influence telecommunication industry. Basically which industry would be benefited from fiscal policy depends solely on the policy makers and the objectives of the government in power. It would undoubtedly benefit people of the nation if government trough fiscal policy makes information and communication technology affordable for mass. Fiscal policy is important because it has the authority to affect the GDP (gross domestic product). Fiscal expansion can also raise the demand for goods and services. Governments of the developing or under developed nations where telecommunication is not much developed yet can encourage the industry by reducing the import tax on equipment and raw materials necessary for the future prospect of the industry which would certainly act as a boost to increase the number of people enjoying the benefit of telecommunication (Oduroye 2009). The increasing number of mobile users in all over the world including the less developed sub continent nations can be used as an example in support of the above discussion. Government can also encourage the telecommunication industry by contributing a larger part of their spending on infrastructural development. This will surely act as a positive catalyst for the prosperity of the industry. On the other hand Monetary policy is described as the process by which Government and it’s monetary authority and Central Bank try to control the availability of money on people’s hand, supply of money as a whole and most importantly they try to control the cost of money which is basically the rate of interest. The objective of the monetary authority is to achieve the desired level of growth and stability of the economy. Depending upon the objective of the policy maker Monetary policy can be Expansionary or it can be Contractionary. Expansionary monetary policy increases the amount of money in the economy where as contractionary policy does just the opposite. It is natural therefore to infer that expansionary policy will act as a stimulus to telecommunication industry also. Actually expansionary monetary policy will ensure that people will hold money; there will be an increase in the total money supply. The immediate effect will be expansion in all kind of business and economic activities and they will certainly demand better and frequent communication (Amato J D, & Morris S. 2002). On contrast contractionary monetary policy can reverse the situation described above. References Batt, R. (2001). Explaining Wage Inequality in Telecommunication Services. Retrieved July 30, 2009, from http://www.jstor.org/pss/2696102. economywatch.com (2009). Retrieved July 30, 2009, from http://www.economywatch.com/world-industries/telecommunications/. Dewan S. (2008). Wage Inequality Is a Global Challenge. Retrieved July 30, 2009, from http://www.americanprogress.org/issues/2008/11/wage_inequality.html Oduroye, A. (2009). Fiscal Policy and Ways to Make Information and Communications Technology (ICT) Affordable for All By the Nigerian Government. Retrieved July 30, 2009, from http://www.nigerianmuse.com/20090720044957zg/projects/science_tech/fiscal-policy-and-ways-to-make-information-and-communications-technology-ict-affordable Amato J D, & Morris S. 2002. Communication and Monetary Policy. London School of Economics. Retrieved July 30, 2009, from http://hyunsongshin.org/www/OXREPfin.pdf Autor D. 2005. Trends in U.S. Wage Inequality: Re-Assessing the Revisionists. Retrieved July 30, 2009, from http://www.nber.org/papers/w11627 Wesolowski, K. 2002. Mobile Communication Systems. Retrieved July 30, 2009, from http://books.google.co.in/books?id=58buKg4C7k8C&printsec=frontcover&dq=positive+and+negative+externalities+in+telecommunication#v=onepage&q=&f=false Read More