For a while now, many companies have been exploiting the ‘environmentally-friendly’ angle in an attempt to increase sales. A prominent example of this is Japanese car giant Toyota’s Prius hybrid car, which quickly became a fashion item for celebrities and Americans despite its apparent lack of effectiveness. The market for ‘green’ products and services has grown to such an extent that entire markets have been formed as a result of it, one of which is the market for mobile phone recycling.
Factors which have contributed to the rise of this market include rapid technology change (meaning consumers upgrade with great speed), low initial cost and even planned obsolescence, which entails companies planning and designing products with a limited useful lifespan. Mobile phone recycling companies will purchase people’s old and unwanted phones and recycle their small components, including metals like copper, palladium, gold, silver and platinum, plastics and ceramics.
The collective value of these precious metals is substantial: the values of copper, palladium, gold, silver and platinum in unused mobile phones in storage annually are $17 million, $63 million, $199 million, $31 million and $3. 9 million respectively (without accounting for recovery costs). Although mechanisms to recycle phones were already in place before this market began, there was not enough financial incentive to surrender old phones, not enough publicity and inefficient recycling infrastructure.
The market for mobile recycling has increased rapidly, with industry experts predicting a mobile phone recycling volume of over 10 million handsets in 2010, and increase of over 25% from 2009.
This report has been compiled in order to assess what kind of market the mobile phone recycling market is, and how contestable it is. After visiting price comparison site http://www. comparethemarket.uk.com, which allows users to compare the money they can get from selling their unwanted phones to different recycling firms, it is apparent that there are many firms in the market. In addition, the fact that some of the very amateurish-looking and little-known firms (such as impossibly garish MONEY4URMOBILE. com) can offer slightly more cash than professional-looking and well-known firms such as Mazuma Mobile or ‘Envirofone’ for phones suggests not only that there are very low barriers to entry, but also that the market is highly contestable.
This competitiveness is a result of the fact that the well-known firms will spend large sums on advertising and presentation, thereby only able to give lower sums to consumers, while firms who do not advertise have more money to offer for phones. And, as the start-up costs of such a business are very low and there is no control over access to recycling facilities, there is further evidence that the barriers to entry are near non-existent. Additionally, all the services are relatively homogenous, all offering the same basic service.
There is the occasional extra offered by some firms (Mazuma Mobile, for example, the UK’s best rated Mobile Phone Recycling Website, offer a Data Delete Tool which is rather unique), but this shouldn’t be too large a factor when compared to price In terms of price, the firms compete in terms of negative price, so to speak, or how much is offered for mobile phones. The prices offered by firms in the market often vary slightly (as aforementioned, it seems that firms which do not spend on marketing and advertising have more money to give for phones), but they tend to be around the same mark.
Although there may be an initial assumption that the market is in perfect competition (due to the existence of many firms and the apparent ability for all of these firms to compete), the truth is very different. Advertising and brand awareness are major components of success in this market. This means that a few firms (Mazuma Mobile and Envirofone chiefly) have a large slice of market share, with Mazuma Mobile alone commanding more than 50% of the market.
The amateurish nature of their competitors, who usually beat them on price, and the fact that both firms have a nationwide marketing scheme mean that the majority of people trust them over rivals and are sometimes not even aware of rivals. National advertising and good reviews, the building up of a good brand image, makes consumers feel certain that they can trust firms to deliver the money. In this market, then, it appears that firms which are willing to put up with the sunk cost of advertising are the ones which are most successful.
There are select group of companies which have attained such brand loyalty and trust, and they have a lion’s share of the market. So, although the market appears contestable (as there is perfect information, freedom to advertise and enter the market, and the absence of mandatory sunk costs), the reality is that without the sunk cost of advertising being provided, there is very little chance that new firms will be able to break into the market and form serious competition.
The reputable brand of a few firms, then, could be said to be a barrier to success in the industry, even if there are no technical barriers to entry. The market would appear, then, to be highly incontestable, and be most in line with the oligopoly market model. This is because competition in terms of advertising and quality of service has overrun the slight differences in price which can be observed through price comparison sites.
For the most part, the market follows the kinked demand curve (as can be seen in the diagram above), and the main firms compete in terms of non-price competition (i. e. quality of service, advertising). Interdependence, a key component of oligopolistic markets, can be observed in the relative price rigidity and the recent decision by Cash4Phones to unfurl a nationwide marketing campaign as a result of the advertisement-based success of Mazuma and Envirofone. This market, then, is an incontestable oligopoly.