Microeconomics Case Study

Mexican Telecom Industry: (Un)wanted Monopoly?

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Abstract:
This case helps to analyse how Telmex and Telcel are aided by various factors to maintain their dominance. It can also be used to determine the market concentration and monopoly power of a company. What are the social costs of a monopoly? How weaknesses in the legal and political systems help in upholding unhealthy business environment? How lack of competition is detrimental for an economy?

For almost all the Mexican telephone users – either fixed line or wireless – it’s a love and hate relation with the nation's biggest telecom company, Telmex (and also its mobile phone offspring Telcel). The company is appreciated for, almost single-handedly, developing the telecommunications industry in the country, from the wilderness prior to its privatisation and expanding the foot-print to nook and corners. However, it is also accused of charging irrationally higher charges and thereby denying a vast majority of Mexicans a telephone connection – either fixed line or wireless. The company was privatised in 1990 and was granted a seven competition free years of operations. Even after this time elapsed, the company enjoys same status due to various reasons, most prominent among which are said to be weak regulations and the affinity of the company's management with political power corners. The company is accused of thwarting competition in any form and in effect ensuring its dominance. Telmex enjoys around 90% of fixed line customers and Telcel enjoys around 72% of mobile customers in mid-2008.

Pedagogical Objectives:

• To understand market structure of a monopoly and determine the market concentration and monopoly power of a company
• To analyse price determination and social costs of a monopoly
• To understand how a weak regulatory authority and absence of enforcement of antitrust laws can help a company to maintain its dominance
• To analyse how a dominant firm thwarts competition and the importance of competition for Mexican economy.

Keywords : Monopoly, Characteristics of Monopoly, Sources of Monopoly, Market Concentration, Monopoly Power, Price Maker, Deadweight Loss, Price Maker, Price and Output Determination in Monopoly, Price Discrimination, Degrees of Price Discrimination, Abusing Market Power, Anti Trust Law, Competition, Anti-Competitive Policies, Imperfect Competition, Regulatory Authorities, Carlos Slim, Mexican Telecommunication Industry, TelMex, COFETEL, Mobile Phones in Mexico, Roger Noll, Managerial Economics, Microeconomics, Economics for Business, Business Economics, Economics for Managers, Paul Samuelson