Extended Essay - Anupama Bhatnagar

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Transcript of Extended Essay - Anupama Bhatnagar

Extended Essay in ECONOMICSAnupama BhatnagarTo what extent does the market structure of SIM cards sold in Purwakarta, Jawa Barat fulfils the requirements of a Perfectly Competitive Market (PCM)?

SESSION: IB May 2012 IB CANDIDATE NUMBER:dkz219 (000902-023) SCHOOL: Gandhi Memorial International School, Jakarta, Indonesia SUPERVISOR: Ms. Shweta Sinha WORD COUNT: 4000

Anupama Bhatnagar dkz219 (000902-023) Economics Extended Essay

Table Of Contents1. ACKNOWLEDGMENT..................................................................................3 2. ABSTRACT..................................................................................................4 3. INTRODUCTION..........................................................................................5 3.1 Introducing SIM cards............................................................................5 3.2 Purpose of Investigation.........................................................................5 4. INVESTIGATION: ECONOMIC THEORY USED, METHODOLOGY, DATA...................8PRESENTATION, ANALYSIS & RESULTS

4.1 Homogeneous goods...............................................................................9 4.1.1 Economic Theory..........................................................................9 4.1.2 Data Collection Methodology.........................................................9 4.1.3 Data Presentation.......................................................................10 4.1.4 Analysis and Empirical Results...................................................12 4.2 Many buyers & sellers..........................................................................13 4.2.1 Economic Theory........................................................................13 4.2.2 Data Collection Methodology.......................................................13 4.2.3 Data Presentation.......................................................................14 4.2.4 Analysis and Empirical Results...................................................15 4.3 No Barriers to entry/exit......................................................................16 4.3.1 Economic Theory........................................................................16 4.3.2 Data Collection Methodology.......................................................16 4.3.3 Data Presentation.......................................................................17 4.3.4 Analysis and Empirical Results...................................................18 4.4 Perfect Knowledge................................................................................20 4.4.1 Economic Theory........................................................................20 4.4.2 Data Collection Methodology.......................................................20 4.4.3 Data Presentation.......................................................................20 4.4.4 Analysis and Empirical Results...................................................21 5. CONCLUSION............................................................................................23 6. LIMITATIONS.......................................................................................... 26 7. BIBLIOGRAPHY........................................................................................27 7.1 Books..................................................................................................27 7.2 Interview..............................................................................................27 7.3 Journals..............................................................................................27 7.4 Internet...............................................................................................27 8. APPENDICES..............................................................................................29 8.1 Appendix A..........................................................................................29 8.2 Appendix B..........................................................................................31 8.3 Appendix C..........................................................................................33 8.4 Appendix D..........................................................................................33 8.5 Appendix E..........................................................................................34 8.6 Appendix F...........................................................................................34 8.7 Appendix G..........................................................................................35

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Anupama Bhatnagar dkz219 (000902-023) Economics Extended Essay

1. ACKNOWLEDGEMENTI would like to express my profound gratitude to our Principal, Mr. A.P Singh, I.B coordinator, Ms. Winnie and Supervisor, Ms. Jaba Biswas for their moral support and motivation during my tenure in Gandhi Memorial International School. My sincere thanks to my supervisor, Ms. Shweta Sinha for her guidance, thoughtful inputs and encouragement. Without her support this extended essay would not have reached its present state. She has also been my economics teacher for two years. I would like to thank her for teaching me how to love economics and inspiring me to take up extended essay in this subject. My heartfelt thanks to Mr. Muhammad (Head of Telkomsel Office in Purwakarta) for his patience, time and insight into the telecommunications industry. Special thanks to my driver, Mr. Narudin, who accompanied me to various SIM card retail shops and was my translator during administration of questionnaires in Bahasa Indonesia.

I would like to thank all my friends for their honest feedback on my work and last, but not the least, I would like to thank my beloved parents for their constant support and encouragement.

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Anupama Bhatnagar dkz219 (000902-023) Economics Extended Essay

2. ABSTRACTThis essay discusses the market form of the SIM card industry (telecommunication industry) in Purwakarta, West Java. Specifically, this paper investigates the research question To what extent does the market structure of SIM cards sold in Purwakarta, Jawa Barat fulfils the requirements of a Perfectly Competitive Market? In order to answer the research question data was gathered from the market in question through conducted surveys and statistical price data analysis. All data was gathered during the period June to October 2011 in Purwakarta. The particular geographical location was selected due to close proximity to the authors home and the presence of both - SIM card selling retailers and offices of major service providers. Forty different retail shops in Purwakarta were chosen using a geographical clustering technique and identified using a local map. Eighty consumers of different ages were chosen at random to represent the consumer population in Indonesia. In addition, secondary data on the respective market shares of all firms and data on SIM card features such as auxiliary services offered and price schemes was obtained from the internet. Processing and analysis of the four criteria suggest that the market is a form of a noncollusive oligopoly where firms are aware of the reactions of other firms when making price decisions. The kinked demand curve is used to demonstrate the working of the market. With the sale of slightly differentiated products, existence of price rigidity in the market, prevalent barriers to entry, firms having adequate information regarding their competitors and the CR4 value of 83% supports this conclusion. In effect the evidence collected supports the hypothesis that the market of SIM cards in the Purwakarta Regency is an oligopoly and is dominated by three main firms namely Indosat, Telkomsel and XL.

Word Count: 291

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Anupama Bhatnagar dkz219 (000902-023) Economics Extended Essay

3. INTRODUCTION3.1 INTRODUCING SIM CARDSThe modern technological developments in the 21st century cannot be complete without adding the breakthrough of cellular phones. Popularly known as hand phones in Indonesia, these have found a place in almost every purse, pocket or school bag. Being a greatly demanded means of communication and a dear possession to most, it is interesting to note the different factors consumers consider while purchasing SIM cards and how much they spend on it annually. The innumerable private companies all over the world offering atleast one service each, breed the inevitable intrigue to question the closeness of the SIM card market to a perfectly competitive market. GSM mobile phones require a small microchip called a Subscriber Identity Module or SIM Card, to function. The SIM card is as small as a postage stamp and is usually placed underneath the battery in the rear of the unit. A SIM card contains its unique serial number, internationally unique number of the mobile user (IMSI), security authentication and ciphering information, temporary information related to the local network, a list of the services the user has access to and two passwords (PIN for usual use and PUK for unlocking).1

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PURPOSE OF INVESTIGATION

Before the Telecommunication Act of 1999, domestic services were monopolized by P.T. Telkom and international services were monopolized by P.T. Indosat in Indonesia. However, after 1999, the government abolished the exclusive rights of Telkom in providing fixed line services, and Indosat in providing international services and has been trying to promote industry transparency and fair competition since then. Commitment to eliminate all the forms of monopoly by 2010 led to more than 100 registered operators/service providers. The introduction of SMS, and the launch of prepaid services have lead to a growth of subscribers in Indonesia. In August 2005, the government announced the usage of 19001

"Mobile Phone Features." Wikipedia, the