Canadian telecommunications industry is very specific in terms of its supply – amount of companies and conditions of entering the market in this country are rather different when comparing with the most of developed countries. Incumbent cable companies have created a cozy oligopoly inside the country and are setting their prices, inflating own revenues. Consumers have no choice, because the supply is very limited and there are very few alternative ways of getting telecommunications service. Furthermore, incumbent companies usually use administrative methods to deal with potential competitors – they take legal actions in order to drive new companies out of the market.
An appearance of new companies on the market would decrease revenues of incumbent companies by cutting market prices. Existing companies realize such perspective and do their best to restrict the access to the market. Such situation can be classified as “telecom protectionism” (Michael, 2011). The external supply is limited in order to avoid an increase in aggregate supply. According to the laws of market, an increase in supply causes a decrease in market price. An increase in supply can be shown as a shift of supply curve to the left.
If companies from abroad launch their activity on the market, they suggest additional goods and services. As a result, the internal supply S becomes larger and moves to the left – into S’. After the interaction with existing demand D a new market price P2 is formed. It is obvious, that the new price P2 is lower than the previous market price P1.
An alternative way of watching TV channels was represented by Netflix – a company that suggests a wide range of TV channels for a reasonable price through the internet. The response of the biggest market players was immediate – they did everything to make internet access more expensive. As a result, the total cost of subscribing Netflix includes additional costs for the internet. Consequently, the demand for Netflix service becomes smaller. The decrease in the demand, caused by rising prices, can be explained with two effects. The first is an income effect, which in “ HYPERLINK "http://en.wikipedia.org/wiki/Economics" \o "Economics" economics can be defined as the change in consumption resulting from a change in HYPERLINK "http://en.wikipedia.org/wiki/Real_income" \o "Real income" real income ” (Sullivan & Sheffrin, 2003). This fact will push them either to consume less, or even refuse using such services. The second is a substitution effect. The price of Netflix services will become relatively higher than the price of services, presented by oligopoly companies. This fact will drive people to think carefully one more time before their decision. As a result, incumbent Canadian cable companies will get considerable benefit from such policy.
Big media conglomerates of Canada have a huge impact on the market. Such companies as Bell, Rogers, Telus and Shaw form something very similar to monopoly, because they can set prices, introduce innovations and control the . But such situation is negative for the whole society. Lack of competition slows the …