BUSINESS ECONOMICSClass 112 November, 2009

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

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

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

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.

BUSINESS ECONOMICSProject Work12 November, 2009

Force ProjectionAircraft (2009) India Pakistan China4+G Multi-role Combat Aircrafts(Su-30MKI, MiG-29, Mirage 2000)

220 43 416

2G, 3G Interceptors, Bombers(MiG-Bison, Jaguar, MiG-27, MiG-21)

563 414 1460

783 457 1876

Aircraft (2015 estimate) India Pakistan China4+G Multi-role Combat Aircrafts(Su-30MKI, MiG-29, Mirage 2000, HAL Tejas)

380 250 600

3G Interceptors, Bombers(MiG-Bison, Jaguar, MiG-27)

370 130 630

750 380 1230* Assumption: All 3 Air Forces retire their pre-1980 aircrafts by 2015

MoD Initiatives

Equipment Agency StatusAirframe 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

• 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

Indigenous development - LCA

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

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

M-MRCA Technical BidMaker Engine Radar TWR Speed Cost Weapo

nsEurofighter, UK, Germany, Italy, Spain

2x EJ200(90 kN)

Captor-E(new)

1.18 Mach 2.3

$120mn

7tn

Dassault, France

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

Lockheed-Martin, USA

1x GE110 (144 kN)

APG-80 (mature)

1.09 Mach 2.0

$50mn 6.5tn

Saab, Sweden

1x GE414(98 kN)

Raven (u/d)

1.06 Mach 2.0

$50mn 6tn

Competitive OffersYear Tested

Users Value-addition

1994-2003 4 partners,Austria, Saudi

Arabia

Closest to 5G aircraft.Invitation to India for a partnership in the EF program.

1986-2000 France Full ToT and help with ‘Kaveri’ engine. Involved in the Mirage upgrades.

1996-2001 USA, Australia Most advanced radar and weapons. Only offers partial ToT. Local partnership with HAL, Tata, L&T, BEL established.

2007-present

None. Built on the MiG-29 platform. Offers full ToT and co-development of AESA radar. Strategic partner.

1990s UAE Partial ToT. Last version of the F-16. Opportunity for MRO facilities for largest operating fighter aircraft.

1990s Sweden, Czech, RSA, Hungary,

Thailand

Similar to India’s own LCA. Dependency on foreign suppliers for engine and radar.

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

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.

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.

Critical •Creative Thinking•Inquiry/ investigation

Analysis

•Environment•Stakeholder

Solution

•Evaluation of Alternative

•Parameters

Execution •Recommendation

•Justification of Choice