BUSINESS economics

1. BUSINESS economics Class 1 12 November, 2009

2. Market Structures • Monopoly – One price offer • Duopoly – Two price offers • Oligopoly – Few price offers • Perfect Competition – Many price offers

3. Monopoly • 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

4. Imperfect Competition • 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

5. Perfect Competition • 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.

6. BUSINESS economics Project Work 12 November, 2009

7. Force Projection * Assumption: All 3 Air Forces retire their pre-1980 aircrafts by 2015

8. MoD Initiatives 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

9. IAF initiatives • Upgrade existing aircrafts • 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

10. Planning ahead for 2020 and Beyond • 5th Gen Fighter Aircraft • Joint development with UAC, Russia (50% share) • Based on Russia’s T-50 project (twin-engine 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 • 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

11. M-MRCA Technical Bid

12. Competitive Offers

13. Political Decision • 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

14. International relations • Russia – old and reliable ally since the Soviet era, has supplied majority of India’s aircrafts, warships, submarines, tanks and small arms. A former super-power, 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.

15. Group Work • IAF Team (2 Groups) • Conduct technical & financial evaluation. • Recommend best-suited aircraft for the Air Force. • Qualify and short-list 2 winners. • Ministry of Defense (2 Groups) • Evaluate the political and diplomatic relations with vendor countries. • Select the contractor best suited to meet long-term strategic needs.