BUSINESS ECONOMICS
Class 1
12 November, 2009
Market Structures
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Monopoly – One price offer
Duopoly – Two price offers
Oligopoly – Few price offers
Perfect Competition – Many price offers
Monopoly
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Monopoly (single seller) - exists when a specific
individual or an enterprise has sufficient control over a
particular product/service to determine significantly the
terms on which other individuals shall have access to it.
Lack of economic competition
Monopsony – single buyer
Formed by force, by law, naturally, integration
Regulated in India by MRTP Act
Examples: Indian Railways, Armed Forces
Imperfect Competition
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More than one seller or buyer
Control of price is not determined by the market
Duopoly, Oligopoly, Cartel
Examples: Oil companies
The Rule of Three (Sheth & Sisodia)
Game Theory and Prisoner’s dilemma
Perfect Competition
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Infinite Buyers/Infinite Sellers – Infinite consumers with the
willingness and ability to buy the product at a certain price, Infinite
producers with the willingness and ability to supply the product at a
certain price.
Zero Entry/Exit Barriers – It is relatively easy to enter or exit as a
business in a perfectly competitive market.
Perfect Information - Prices and quality of products are assumed to
be known to all consumers and producers.
Transactions are Costless - Buyers and sellers incur no costs in
making an exchange.
Firms Aim to Maximize Profits - Firms aim to sell where marginal
costs meet marginal revenue, where they generate the most profit.
Homogeneous Products – The characteristics of any given market
good or service do not vary across suppliers.
BUSINESS ECONOMICS
Project Work
12 November, 2009
Force Projection
Aircraft (2009)
India
Pakistan
China
4+G Multi-role Combat Aircrafts
220
43
416
563
414
1460
783
457
1876
Aircraft (2015 estimate)
India
Pakistan
China
4+G Multi-role Combat Aircrafts
380
250
600
370
130
630
750
380
1230
(Su-30MKI, MiG-29, Mirage 2000)
2G, 3G Interceptors, Bombers
(MiG-Bison, Jaguar, MiG-27, MiG-21)
(Su-30MKI, MiG-29, Mirage 2000, HAL Tejas)
3G Interceptors, Bombers
(MiG-Bison, Jaguar, MiG-27)
* Assumption: All 3 Air Forces retire their pre-1980 aircrafts by 2015
MoD Initiatives
Equipment
Agency
Status
Airframe
design (CF-C)
ADA,
Bangalore
Completed
Turbofan
Engine
GTRE,
Bangalore
‘Kaveri’ failed to meet thrust
requirements; imports from
GE or EuroJet considered
Radar
LRDE,
Bangalore
Co-developed with Elta,
Israel
Fly-by-wire
FCS
NAL,
Bangalore
Completed with help from
Infosys and Airbus
Electronic
Warfare
DARE,
Bangalore
‘Mayavi’ EW co-developed
with Elisra, Israel
Weapons
DRDO,
Bangalore
Astra BVR, Russian missiles
Indigenous development - LCA
• 7 aircrafts built
• Over 1000 test flights completed
• 40 aircrafts ordered by IAF, 6 by IN
• Mk1 of ‘Tejas’ to be inducted by 2010
• Mk2 development to continue
IAF initiatives
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Upgrade existing aircrafts
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MiG-27 upgrade by HAL
completed
MiG-29 being upgraded by
UAC, Russia with Zhuk PESA
radar
Mirage 2000 being upgraded
by Thales & Dassault, France
Sukhoi 30MKI to be fitted with
BrahMos CM, Novator missile
and AESA radar
Planning ahead for 2020 and Beyond
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5th Gen Fighter Aircraft
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Joint development with UAC, Russia
(50% share)
Based on Russia’s T-50 project (twinengine heavy fighter)
Stealth features (internal weapons,
RAM-coated composite skin, S-duct
inlet, reduced RCS)
First test flight of Russian version in
2010
Medium MRCA Tender
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Global Competition – 6 Bids
$12bn budget for 126 aircrafts
Technology transfer/ Offset
AESA radar, modern weapons
RFP released in August 2007
Technical evaluation completed in
May 2009. Field trials in progress
M-MRCA Technical Bid
Maker
Engine
Eurofighter, 2x EJ200
Radar
TWR
Speed
Cost
Weapons
1.18
Mach 2.3 $120mn
7tn
UK, Germany,
Italy, Spain
(90 kN)
Captor-E
(new)
Dassault,
2x M88
(75 kN)
RBE-2AA
(u/d)
1.13
Mach 1.8 $80mn
9.5tn
Boeing, USA
2x GE414
(98 kN)
APG-79
(mature)
0.93
Mach 1.8 $60mn
8tn
UAC, Russia
2x RD33MK
(88 kN)
Zhuk-AE
(u/d)
1.10
Mach 2.2 $40mn
7tn
LockheedMartin, USA
1x GE110
(144 kN)
APG-80
(mature)
1.09
Mach 2.0 $50mn
6.5tn
Saab,
1x GE414
(98 kN)
Raven
(u/d)
1.06
Mach 2.0 $50mn
6tn
France
Sweden
Competitive Offers
Year Tested
Users
1994-2003
4 partners,
Austria, Saudi
Arabia
1986-2000
France
1996-2001
USA, Australia
2007-present
1990s
1990s
Value-addition
Closest to 5G aircraft.
Invitation to India for a partnership in the EF program.
Full ToT and help with ‘Kaveri’ engine.
Involved in the Mirage upgrades.
Most advanced radar and weapons.
Only offers partial ToT.
Local partnership with HAL, Tata, L&T, BEL established.
None.
Built on the MiG-29 platform.
Offers full ToT and co-development of AESA radar.
Strategic partner.
UAE
Partial ToT. Last version of the F-16.
Opportunity for MRO facilities for largest operating
fighter aircraft.
Sweden, Czech, RSA, Similar to India’s own LCA.
Hungary, Thailand
Dependency on foreign suppliers for engine and radar.
Political Decision
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Strategic relationship
Help in indigenous LCA project
Reliability of imported supplies
Benefits to local industry
Transparency in the award of contract
Opposition in the Parliament
War and defense planning
Total Cost of Operation
International relations
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Russia – old and reliable ally since the Soviet era, has
supplied majority of India’s aircrafts, warships,
submarines, tanks and small arms. A former superpower, now an emerging economy with veto power.
USA – Strategic partnership with India post 9/11, has
supplied transport aircrafts, civilian nuclear reactor and
helicopters. Global power with allies in Europe and
Asia.
Europe – Increasing trade relations; has supplied
trainer and fighter aircrafts. Neutral stand on world
affairs.
Group Work
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IAF Team (2 Groups)
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Conduct technical & financial
evaluation.
Recommend best-suited aircraft
for the Air Force.
Qualify and short-list 2 winners.
Ministry of Defense (2 Groups)
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Evaluate the political and
diplomatic relations with
vendor countries.
Select the contractor best suited
to meet long-term strategic
needs.
• Creative Thinking
Critical • Inquiry/ investigation
• Environment
Analysis • Stakeholder
• Evaluation of Alternative
Solution • Parameters
• Recommendation
Execution • Justification of Choice