1. The case suggests that competition between these firms is “winner take all.” a. Do you agree? Why or why not? b. In general, what structural features will lead to this kind of competition?
The competition between British Satellite Broadcasting (BSB) and SkyTV will evolve into a “winner take all” scenario. Both firms were involved in a war of attrition. Each play had to decide at different time whether to continue to fight or to concede. Fighting was costly, as both firms had already sunk a lot of money in order to dominate the British satellite market. Should BSB and SkyTV continued to compete with each other, both of them would continue to lose money. The benefit from this fighting would not appear until the other player conceded the contest. The winning company would be the one who was willing to fight the longest, while the losing one would with it had never participated in this competition. Therefore, this war of attrition would eventually result in “winner take all”.
Several structural features will lead to this “winner take all” competition. First of all, the industry is characterized as a natural monopoly. The capital and other fixed costs are so high relative to market demand that it is unlikely for more than one firm to be profitable in the market. In satellite TV industry, the fixed cost, including program production and acquisition, marketing, satellite depreciation, and overhead, represented about 75-80% of the costs. The market would only be able to accommodate one player. Second, consumers have low preference heterogeneity. Most consumers just needed a reliable means to access different TV