TERM PAPER On Measurement of oligopoly in Private Sector Banks

Submitted to: Mrs.Vani Mittal

Submitted by:
Rahul Goswami MBA(HHM),10907509

INDEX SRN TOPIC 1 Oligopoly 2 Curve in oligopoly 3 Features in oligopoly 4 Banking structure in India 5 Privatization of bank 6 List of bank in India 7 Top 10 private bank in India 8 Importance of private bank in India 9 Major & minor player in private bank in India Strategic group in indianprivate bank industry 10 Oligopoly in private bank in india 11 Reference and bibliography 12

INTTRODUCTION
Oligopoly is a market where a few sellers sell differentiated or homogenous products under continuous consciousness of rivals actions. Examples of oligopolies include crude oil businesses and auto manufacturers.

Market structure:.
Oligopolists are torn between: 1. cooperating to increase profits by obtaining the monopoly outcome, or; 2. competing to try to gain an advantage over competitors.

Duopolies and Cartels

A duopoly is when there are only two businesses in a market. Their best outcome is to cooperate and agree to restrict output to the monopoly quantity, where price is greater than margical cost, and profit is maximized. A great example of a duopoly is Coca-Cola and Pepsi Co. Usually, a duopoly trying to maximize profits will produce more than a monopolist but less than a competitive industry. Duopolies come from collusion where firms agree to share output and set prices such as in a cartel. A cartel is a group of companies acting in unison, such as OPEC. If the competing companies cannot agree, then they may end up with the competitive position with profits equal to zero. Cartels are known to restrict output quantities in order to raise prices, and consequently profits.

Size of an Oligopoly and the Market Outcome

Generally, the more companies in the industry, the harder it is to form a cartel and to enforce it. As the number of companies increases, the more the industry resembles a competitive outcome, since each company has a smaller effect on the outcome. The mentality where each company tends to think only of its own profits and strategic behaviour is reduced. Each company will increase production as long as price is greater than marginal cost. As the number of companies increases, we tend to move towards a perfectly competitive outcome.

Game Theory and Prisoners' Dilemma

Game theory is the study of how people behave in strategic situations (i.e. when they must consider the effect of other peoples responses to their own actions). In an oligopoly, each company knows that its profits depend on actions of other firms. This gives rise to the "prisoners dilemma".The prisoners' dilemma is a particular game that illustrated why it is difficult to cooperate, even when it is in the best interest of both parties. Both players select their own dominant strategies for shortsighted personal gain.

Curve in oligopoly

Demand(Kink) curve in oligopoly

Features of Oligopoly:
1.Few sellers
There are few dominated sellers in oligopoly market structure. For examples, automobile sector in India, Maruti, Hyundai, Toyota and Ford are few major players. 2.Product There may be differentiated products(like cars ,motorbikes, television, washing machines) and homogenous products (like petrol, cement, steel and aluminium) in oligopoly. 3Entry barriers There is no legal barriers as such to enter the market under oligopoly. However, at the same time various economic barriers which the number of firms in the market. These are: Big investment Requirements Strong consumer loyality for Existing Brands Economic of scale

4.Interdependent decision making One firm cannot take any decision independent of other firms.if a firm reduce cost and improve quality of its product, other rivals would also follow this strategies to exist in market. 5.No price war: Non-price competition is a consistent feature of the competitive strategies of oligopolistic firms. Examples of non-price competition includes: a. b. c. d. e. f. Free deliveries and installation Extended warranties for consumers and credit facilities Longer opening hours (e.g. supermarkets and petrol stations) Branding of products and heavy spending on advertising and marketing Extensive after-sales service Expanding into new markets + diversification of the product range

BANKING STRUCTURE IN INDIA

PRIVATISATION OF BANK
Privatisation, process of transferring ownership of a business, enterprise, agency or public service from the public sector (government) to the private sector (business). Privatisation can be done by two type firstly when government company sale there mostly share to the private organisation and secondly demutualization of mutual organisation to a joint stock company. . Private banking in India was practiced since the begining of banking system in India. The first private bank in India to be set up in Private Sector Banks in India was IndusInd Bank. It is one of the fastest growing Bank Private Sector Banks in India. IDBI ranks the tenth largest development bank in the world as Private Banks in India and has promoted a world class institution in India. The first Private Bank in India to receive an in principle approval from the Reserve Bank of India was Housing Development Finance Corporation Limited, to set up a bank in the private sector banks in India as part of the RBI's liberalisation of the Indian Banking Industry. It was incorporated in August 1994 as HDFC Bank Limited with registered office in Mumbai and commenced operations as Scheduled Commercial Bank ING Vysya, yet another Private Bank of India was incorporated in the year 1930. Bangalore has a pride of place for having the first branch inception in the year 1934. With successive years of patronage and constantly setting new standards in banking,

OBJECTIVES OF PRIVATISATION OF BANK IN INDIA:

Following are the objectives of privatization of bank in india: 1) Improve the operational efficiency of enterprises that are currently in the Parastatal sector, and their contribution to the national economy; 2 )Reduce the burden of enterprises on the Government budget; 3) Expand the role of the private sector in the economy, permitting the Government to concentrate public resources on its role as provider of basic public services, including health, education and social infrastructure; and 4) Encourage wider participation by the people in the ownership and management of business 5) To create a more market-oriented economy;

6) To secure enhanced access to foreign markets, to capital and to technology; 7 )To promote the development of the capital market; and 8)To preserve the goal of self-reliance

List of Private Banks in India

Bank of Punjab Bank of Rajasthan Catholic Syrian Bank Centurion Bank City Union Bank Dhanalakshmi Bank Development Credit Bank Federal Bank HDFC Bank ICICI Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank Karnataka Bank karur Vysya Bank Laxmi Vilas Bank South Indian Bank United Western Bank UTI Bank

TOP ten Bank in India(2009)

Rank Bank 1 State Bank of India 2 HDFC Bank 3 Axis Bank 4 Bank of India 5 Punjab National Bank 6 Bank of Baroda 7 ICICI Bank 8 Union Bank of India 9 Citibank

10

Canara Bank

Importance of Private Sector in Indian Economy

The importance of private sector in Indian economy over the last 15 years has been tremendous. The opening up of Indian economy has led to free inflow of foreign direct investment (FDI) along with modern cutting edge technology, which increased the importance of private sector in Indian economy considerably. Previously, the Indian market were ruled by the government enterprises but the scene in Indian market changed as soon as the markets were opened for investments. This saw the rise of the Indian private sector companies, which prioritized customer's need and speedy service. This further fueled competition amongst same industry players and even in government organizations. The post 1990 era witnessed total investment in favor of Indian private sector. The investment quantum grew from 56% in the first half of 1990 to 71 % in the second half of 1990. This trend of investment continued for over a considerable period of time. These investments were especially made in sector like financial services, transport and social services. The late 1990s and the period thereafter witnessed investments in sector like manufacturing, infrastructure, agriculture products and most importantly in Information technology and telecommunication. The present trend shows a marked increase in investment in areas covering pharmaceutical, biotechnology, semiconductor, contract research and product research and development. The importance of private sector in Indian economy has been very commendable in generating employment and thus eliminating poverty. Further, it also effected the following

Increased quality of life Increased access to essential items Increased production opportunities Lowered prices of essential items Increased value of human capital Improved social life of the middle class Indian Decreased the percentage of people living below the poverty line in India Changed the age old perception of poor agriculture based country to a rising manufacturing based country Effected increased research and development activity and spending Effected better higher education facilities especially in technical fields Ensured fair competition amongst market players Dissolved the concept of monopoly and thus neutralized market manipulation practices

MAJOR PLAYER IN PRIVATE SECTOR BANK ICICI bank HDFC bank IDBI bank HSBC bank STANDARD CHARTERED bank AXIS BANK RELIANCE bank UTI bank

MINOR PLAYER IN PRIVATE SECTOR BANK LUXMI BANK DENA BANK BANK OF RAJASTHAN BANK OF PUNJAB

STRATEGIC GROUP IN INDIAN PRIVATE BANK INDUSTRY:

A related aspect of market dynamics may be captured by comparing the ranks ofbanks, based on their market share between 1994-95 and 2001-02. Such an exercise is reported in table IV and V. It is observed from the table IV that over time, there has occurred a deterioration in ranks of all banks, except for only two banks, Jammu and Kashmir Bank and Lord Krishna. Deterioration in the case of a quite a number of oldbanks is significantly marked. They include Sangli Bank, Bank of Rajasthan, Vyasa Bank, Catholic Syrian Bank, United Western Bank, and Dhanalaxmi Bank. Bharat Overseas Bank etc. On the other hand, all the new banks have improved their rank over 126the said period, as shown by table V. Most prominent among them are UTI Bank, HDFC Bank and ICICI Bank. Bank of Punjab, Centurion Bank, Global Trust Bank1 and IndusInd Bank followed them. Hence, another element of market dynamics is derived from the fact that, most old banks have faced a deterioration in their ranks, while new banks, without exception have improved their rank over the period of the study. To recapitulate, some aspects of the dynamics of private banking market are listed below. The old banks are faced with a fall in both asset and market share. Absolute and proportionate increase in relative market share over the period of time was greater for the new banks. The ranks of most old banks have fallen, while that of new banks improved.

OLIGOPOLY IN PRIVATE SECTOR BANK

Few sellers: There are few dominated private bank in market .Like HDFC bank, ICICI bank, AXIS bank, Kotak Mahindra & IDBI bank. However, bank like Dena bank, luxmi bank, kutumbkam bank are the small player. Product: There are homogenous because some provide insurance(health insurance, life insurance, retire plan),credit card & loan by ICICI bank and HDFC bank, venture capital by IDBI bank . ENTRY BARRIERS :As we know that there is no legal barriers. and all the private banks are there come in oligopoly. However small player like Luxmi bank and Dena bank are not bale to spend lot of their money on advertisements to be a competitors of other major players, economic of scale and consumer loyalty is not so good because their market share shsre is no t and they could not convenience large number of people.

 Interdependent decision making between private banks players:

As ICICI bank started credit card (premium card, titanium card),HDFC also stared credit services to beat them As ICICI become no. 1private in India due to expanding mostpart of its capital on advertising, their competitors like HDFC,HSBC also expanding money on advertising on TV, radio ,newspaper etc. HDFC launched number of branches of atm in metro,city & town ,ICICI also follow it to exist in oligopoly and to preserve their market share. ICICI are launching their branches in small cities to attract smalltown and rural publics,as HDFC did. ICICI changed their promotional strategies to exist in market .they today expand their money on AD. Like YOU ARE FIRST. ICICI increased their workforce to beat to give better service to their customer to exist in market.

REFERENCE AND BIBLIOGRAPHY: Paper work by Ashu Taru Deb and K.V.Bhanu Murthy

Geetika Pyali Ghosh, and Purba Roy Chaudhary(Managerial Economics) www.economicstimes.com