Email Services – The perfect example of imperfect competition

This is a part of the work our group did for our Econ project. I hope I haven't made any blunders here.

The major email service providers in India – Gmail, Yahoo, Rediff, and Hotmail command over a 95% of the market share . The email market in India is thus an example of oligopoly- a market structure in which a small number of shares control a huge market share.

For an imperfect competition to exist there needs to be some amount of market power to be present with the firms. We will now examine the source of market power in case of our market of interest. Firstly, there are patents and copyrights which provide these firms with some amount of market power. Google has its page rank algorithm with the help of which it provides unique services to its customers. But patents are not a major part of the story here. Patents can be and have been circumvented in the past. The two most important reasons for market power vesting with individual firms are – Economies of Scale and Network Economies.

Economies of Scale are apparent in high tech email services industry. With the amount of storage space provided and the number of users of each service, each of these companies has to have big server farms. The average cost of each email account provided falls down with the number of email accounts given by the service provider. This is so because the air conditioning costs of the server farms and the charges for each server would tend to remain constant over a long range of email accounts because they are fixed costs. Hence, the marginal cost of providing one email account would be very small. Therefore, the companies which provide larger number of email accounts or in other words have a larger number of customers have to suffer a lower average cost per email account.

Network economies or externalities are another very important factor contributing to market power of the oligopolist. Network externalities are the effects on a user of a product or service of others using the same or compatible products or services. Positive network externalities exist if the benefits are an increasing function of the number of other users. Negative network externalities exist if the benefits are a decreasing function of the number of other users. A common example is computer software. Emails, through the use of add-ons, also fall in the same category. It was said that Google introduced gtalk only to drive more people to join its mail service gmail. People who wanted to use gtalk to chat with their friends on gtalk could only do so if they had an existing gmail account. Thus, network economies are also an important factor contributing to the market power of the email services.

Being oligopolists, these firms are able to practice price discrimination. They do so by offering the consumers ‘premium account’. These so called premium accounts do not have advertisements displayed with the emails and offer certain other services. The cost associated with offering these services is not much more than the cost of offering the normal vanilla email account. Thus, the firms are able to practice third-degree price discrimination. 

Consumers are divided into two groups, with separate demand curves for each group. The optimal prices and quantities are such that the marginal revenue from each group is the same and equal to marginal cost. Here group 1, with demand curve D1, is charged P1, and group 2, with the more elastic demand curve D2, is charged the lower price P2. Marginal costs depends on the quantity produced QT.

Sometimes I forgot to laugh - A book review

Peter Roebuck was a Somerset opener and captain. He currently writes for Sidney Morning Herald and The Hindu. Recently, I had the good fortune of reading his autobiography, 'Sometimes I forgot to laugh'. It provides really good insights into the life of a professional cricketer. People generally believe that professional sportsmen would be the happiest people on the face of the earth, enjoying themselves to the fullest by doing what most people only aspire to do, being on a first name basis with many celebrities and enjoying the camaraderie which should be a part of team sports. Roebuck disabuses the reader of these notions and presents the life of a professional sportsman(in this case a moderately successful one) in its nakedness.

He was selected as part of Somerset team in 1974. Somerset, a not so fashionable English county back then, had decided to invest in youth and as a result had selected many six youngsters in its team. Along with Roebuck, there were two other youngsters who were going to become household names in all cricket playing nations. One was a young all rounder from Yeovil named Ian Botham and another was a batsman in his early 20s from a neglected West Indian island Antigua. His name was Isaac Vivian Alexander Richards. The book deals with Roebuck's relationship with these two towering giants of cricket.

Cricket is a cruel game. It is often said that cricket reveals character. But it can also be argued that cricket makes character. Sometimes I forgot to laugh is an excellent character sketch of many of the well known names of the game.

It also makes the point that at the end of the day playing cricket is just another job. Just like any other job, people do get bored playing the game. And it has its own share of office politics. Roebuck deals with the politics part in the chapter The Somerset Affair. As a captain of Somerset, Roebuck had to sack three of the best players(Richards, Botham and Joel Garner) Somerset had after they had finished at the bottom of the table. The backlash from the public and the bad blood between Botham and Roebuck which resulted is typical of affairs in any other profession. As an example consider Larry Ellison's firing of Terry Garnett, his trusted Vice President at Oracle.

I will end this post by quoting from the book a few lines about Steve Waugh.
"Whereas Richards had been a performer and Crowe a stylist, Waugh was a competitor. By his reckoning, a bloke was there to score runs and take wickets, and all else was tomfoolery....Waugh was sustained by an inner drive that was rarely revealed, pushed along by an unwavering commitment to winning"

Most of the autobiographies of former players is filled with just anecdotes and their escapades. Thank God for autobiographies like this which give real insight into a player's mind.