Question:
Discuss about the Australian Energy Regulator is Operating in the Australian Market.
Australian Energy Regulator is a wholesale electricity and gas industry existing in the Country of Australia. It is a natural monopoly, which does transmission of power and distribution of electricity in the Australian market. Australian Energy Regulator being a public utility sector, but it is considered existing in a monopoly market. Monopoly market is where the structure consists of only one seller or producer, which exists for a product, and their barriers to entry s restricted. The assignment is done for the company Australian Energy Regulator and the country taken up is Australia. In Australia, due to presence of electricity being a natural monopoly. In the research, AER is operating in the Australian market (Allender & Richards, 2012).
The demand curve, which is drawn, and it shows distribution of the price, quantity, which is demanded, is drawn, and it is one of the very important tools and it analyses the customer’s need in the market.
Electricity is an public utility and the ideal commodity which is traded using pool arrangement.. Electricity is a product, which cannot be stored for future usage therefore the supply is changing with the change in the demand .Every one unit of electricity is different from the rest of the units since it is not possible to determine the particular generator, which has produced the electricity. There is specialized information technology, which is NEM and this system balance the supply with the demand, and thereby maintaining reserves and the power system operate one at a time and thus facilitating the financial settlement of the physical delivery (Comyns et al., 2013).
Australia has established a market where there is market in electricity future. With the improvement of technology and increase in the betterment of IT the monopoly power of the generator has been reduced but the regional monopoly power which the sellers of electricity in Australia remains the same and is very restricted. With the innovation of technology, the regional monopoly power of the market of Australia can be reduced. The changes in the electricity market are likely to continue in the near future. The market size and the growth rate, the total profitability of the company is overall since there are no competitors or any economic indicators used in evaluating the market in this industry. There are no new entrants in the industry and the suppliers and buyers cannot choose the products. There is no competitive pressure that the electricity company faces, since it is the only seller, therefore there is no competition that it has to beat with the rest (Helbig, 2015).
Australian Energy Regulator is the only unique seller and distributor of electricity in Australia; it is the most recognizable and unique brand existing and supplying electricity in Australia. It is a registered wholesale market having trademark, which is sold in every portion in the Australia (Nepal, Menezes & Jamasb, 2014). There are two type of costs that are involved in the natural monopoly is marginal cost and fixed cost. In a natural monopoly like electricity industry, the marginal cost decreases with the economies of scale. The electricity market has unique cost structure, it has a very high fixed cost and thus they do not depend on the output, since marginal cost is constant (Frankel, Parsley & Wei, 2012).
Natural monopolies such as electricity are the largest supplier in the industry and it is the only supplier and thus has high cost advantage and where fixed cost dominates the market. A firm, which has a high fixed cost, requires huge customers to earn the return on investment. Since they have high cost from gains from market share and increases in output from the fixed cost. Companies take advantage from economies of scale since the average cost is reduced since it is a natural monopoly. Once a natural monopoly has been established because of the large initial, cost accordingly the economies of scale lower. Thus, no firms attempt to enter the industry in the monopoly market (Kapferer, 2012).
Monopoly market in which there is one seller who sells the products, which are unique, and the seller has a high market hold. Sometimes the firms use the restrictive trade to increase and maximize the price and profit of the firm. Monopoly market has both prices as well as non-price competition. In monopoly, the market form where there are one seller and the market is homogeneous having unique product (Garcia?Sanchez, Mesquita & Vassolo, 2014).Monopoly is the most prevalent in the electricity industry in the country. In the Australian market there is only one electricity firm supplying electricity in the Country. The industry is selling homogeneous and unique product in a monopoly market and thus affect the industry. AER has grown with a huge advertising in Australia. There is no competition since there are no new entrants in the electricity industry. It has a very positive image, it would have to have a very positive image and therefore create recognition to the market. With time the improvement of technology the industry is not be able to remain and have monopoly power (Hosken, Olson & Smith, 2016)
Following are the key factors that AER has when they were considering the pricing strategy:
Price is set according to the demand and they are the price maker
Price is what the company gives where the company has the maximum revenue (Lacoste, 2012).
Price should not be low and it is always high since it enjoys monopoly
The customers do not have choice and will buy their product.
Price is kept according to their choice
The price of electricity, since it is the market leader the price is very high
AER does not have any competitor and the pricing is high and they earn economic profit in the long therefore pricing has to be done very easily since the people do not shift from one company to the other
In the price competition, the organization will have to try to capture the market. The consumers will buy the product since no option. The firm has been very loyal as they sell quality and emphasizing on quality and service (Murray & Gao, 2012).
AER function is focused on regulating the natural monopoly transmission monitoring the wholesale electricity. The national electricity law confers upon AER’s regulatory functions. AER’s key responsibilities at the present includes (Simshauser, 2017).
It regulates the revenue of the transmission network services and establishes revenue cap
It regulates the revenue of distribution
It monitors the electricity wholesale market
It monitors so that they comply with the national electricity law and regulation
It investigates possible breaches of the provisions and laws and regulations
Instituting and conducting enforcement proceedings against relevant market participants
Exempting the network service providers from registration (Newbury & Paterson, 2015).
The monopoly captures the entire consumer surplus. The increase in economic profit attracts the activity that leads to an inefficient use of. Economies of scale, a monopoly can produce at a lower average total cost than what a large number of competitive firms could achieve. They set the initial prices so that they are able to attract the buyers and to gain market share (Mountain, 2014).
References
Allender, W. J., & Richards, T. J. (2012). Brand loyalty and price promotion strategies: an empirical analysis. Journal of Retailing, 88(3), 323-342.
Comyns, B., Figge, F., Hahn, T., & Barkemeyer, R. (2013, September). Sustainability reporting: The role of “search”,“experience” and “credence” information. In Accounting Forum (Vol. 37, No. 3, pp. 231-243). Elsevier.
Frankel, J., Parsley, D., & Wei, S. J. (2012). Slow pass-through around the world: a new import for developing countries?. Open Economies Review, 23(2), 213-251.
Garcia?Sanchez, J., Mesquita, L. F., & Vassolo, R. S. (2014). What doesn’t kill you makes you stronger: The evolution of competition and entry?order advantages in economically turbulent contexts. Strategic Management Journal, 35(13), 1972-1992.
Helbig, S. (2015). The road toward sustainable energy in Western Australia: what legal and policy settings could make the South West Interconnected System renewable?. Australian Environmental Law Digest, (November 2015), 32.
Hosken, D. S., Olson, L. M., & Smith, L. K. (2016). Can entry or exit event studies inform horizontal merger analysis? Evidence from grocery retailing. Economic Inquiry, 54(1), 342-360.
Kapferer, J. N. (2012). The new strategic brand management: Advanced insights and strategic thinking. Kogan page publishers.
Lacoste, S. (2012). “Vertical coopetition”: The key account perspective. Industrial Marketing Management, 41(4), 649-658.pensive?. Addiction, 109(12), 1959-1966
Mountain, B. (2014). Independent regulation of government-owned monopolies: An oxymoron? The case of electricity distribution in Australia. Utilities Policy, 31, 188-196.
Murray, J. Y., Ju, M., & Gao, G. Y. (2012). Foreign market entry timing revisited: Trade-off between market share performance and firm survival. Journal of International Marketing, 20(3), 50-64.
Nepal, R., Menezes, F., & Jamasb, T. (2014). Network regulation and regulatory institutional reform: Revisiting the case of Australia. Energy Policy, 73, 259-268.
Newbury, P., & Paterson, M. (2015, November). ‘Creative destruction’v ‘Creative accumulation’: Organisational transformation challenges confronting electricity distribution monopolies. In Power and Energy Engineering Conference (APPEEC), 2015 IEEE PES Asia-Pacific (pp. 1-5). IEEE.
Simshauser, P. (2017). Monopoly regulation, discontinuity & stranded assets. Energy Economics.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download