This assignment requires you to explore a ‘real-world’ application of economics. Precise instructions are provided below.
Background To answer the questions below, please consider the market for `over-the-top’ video entertainment as defined in Sherman and Waterman (2016, p. 458). The focus of the questions is on professionally produced content in the form of television, movies and similar forms of video entertainment, and on the method of delivery. This type of video entertainment can be delivered either offline or online. Sherman and Waterman (2016, p. 458) define the latter as “streaming or downloading of videos to a personal computer or other Internet-connected media device.”
Questions to be addressed
- Consider the market for `over-the-top’ video entertainment as it existed in the 1980s and 1990s in Australia, providing offline video entertainment initially through independent rental video stores, and later on also through rental video chains (such as Blockbuster and Video Ezy). Describe and define the market structure in that market. Provide evidence and arguments in support of your claims (related to market structure). Your discussion could address issues such as the number of sellers, product characteristics, how price is determined, whether firms make profits and entry/exit to this market.
This market has faced many changes over time: the introduction of new TV channels, pay TV (e.g. Foxtel), a range of digital TV channels, discount DVD warehouses (e.g. JB Hifi), streaming services (e.g. Netflix) and internet piracy. Regarding the market in the United States, Sherman and Waterman (2016, p. 458) write: “Driving these changes have been dramatic technological advances, accompanied by rapid broadband Internet adoption, from about 3 percent of households in 2000, to about two-thirds of households only a decade later (Pew Research Center, 2011), and by a growing migration of consumers from offline to online media delivery systems.”
- What is the relationship between offline and online video entertainment for consumers? As broadband has become widely available and cheaper, describe what has happened to the demand for offline video entertainment. What other aspects of online video services might have affected the demand for offline video entertainment in Australia? Provide evidence for your assertions.
- Given the market structure motivated in question 1 and the more recent changes in the Australian market regarding the streaming of movies (e.g. Netflix), explain why many offline video rental stores have been closing down over the past few years. Illustrate this clearly in a well-labeled diagram.
- Now consider the market for online video entertainment, and assume for simplicity that supply in this market is upward sloping. Illustrate in a well-labeled diagram what has happened in the Australian market over the past 5 years, provide a brief explanation in words and motivate your claims with evidence.
When developing your answers, you should use appropriate economic concepts and diagrams to analyse the problem. Some of the below articles can be useful starting points, and you should be able to get access by clicking the links provided. These resources will soon also be accessible through the eReadings list for this unit:
Draffen, D. (1998, Feb 17). Independent video stores survive within the niches. New York Times. Retrieved from http://ezproxy.library.usyd.edu.au/login?url=https://search-proquestcom.ezproxy1.library.usyd.edu.au/docview/430922852?accountid=14757
Sherman, R., & Waterman, D. (2016). Chapter 22. The economics of online video entertainment. In J.M. Bauer and M. Latzer Handbook on the Economics of the Internet, 458-474, Elgar Online. Retrieved from https://www.elgaronlinecom.ezproxy1.library.usyd.edu.au/view/9780857939845.xml (note: mainly p.458-465)
Smith, M.D., &Zentner, A. (2015). Internet Effects on Retail Markets. Retrieved from Social Sciences Research Network via http://dx.doi.org/10.2139/ssrn.2594807 (note: mainly sections 1-3)
- In this assignment it is critical that you set up a clear and logical discussion.
- The written assignment is maximum 700 words long, not including reference list and diagrams. It should roughly be written in essay-style, even though subtitles are allowed to structure the assignment. Any assignments longer than 700 words will only be read and graded for the first 700 words. Students need to indicate the word count on the assignment itself.
- You should use appropriate economic concepts and techniques to analyse the problem. You should also make explicit any assumptions that you make.
- You must back up with evidence or logical reasoning all statements that you make. Your claims should be, where appropriate, supported by references to the existing work (detailed in a reference list).
- You need to use appropriate language and submit a professional piece of work. Avoid slang or colloquial terms; check spelling and grammar; use appropriate language.
- Submission details: Assignments must be submitted electronically via the Turnitin submission inbox on Blackboard. Please do NOT include an individual assignment cover sheet in your submission.
- You are encouraged and expected to do additional research. For example, Factiva is a large database that includes articles in publications such as the Australian Financial Review, The Economist and The Australian. Such articles are likely to provide useful information on the business environment. You should use the APA 6th Referencing Style. Below we present a simple example of how to reference a source.
- Please use a font size of 11 or 12, 1.5 line spacing and normal margins (e.g. 1 inch at top, bottom, left and right). Keep in mind that a marker faced with a well-presented text and diagrams starts off marking with a positive attitude towards the essay.
- This written assignment is worth a maximum of 40 marks and makes up 15% of your final mark in this unit. Your work will be assessed based on (1) the clarity, depth and consistency of the analyses provided in answering the questions, (2) readability & presentation, and (3) own research and referencing. You find a rubric posted along with this assignment.
++++ THE MARKET STRUCTURE IS OLYGOPOLY