Mutual Fund Industry Classification Assignment.
Classify the United States Mutual Fund Industry as one or more of the forms of competition from both the investor (consumer) and offeror (producer) perspectives.
1. a. Producer Classification in tabular style:.
Criterion Competition Evidence.
Many Buyers Oligopoly 10 - 12 producers (behemoths) control 52% of the .
Few Sellers entire Mutual Fund (MF) Industry. (Heilbroner,.
Robert and Thurow, Lester, Economics Explained, 1198, page 165, see *).
Slope of Marginal Revenue Curve at Equilibrium is Steeper Sloping.
Slope of Marginal Cost Curve at Equilibrium is Increasing.
Overall Industry Classification = Differentiated Oligopoly.
b. Impact of Porters Five Forces of Competition.
1. The Competition Among Sellers.
- Among the behemoths, the competition is fierce; their objective is to be at the top of the .
MF Industry in overall market share.
- Occurs mainly in the open-end MF market which comprises 75% of overall market make-up.
- Heavily regulated industry forces competition to concentrate on developing and sustaining .
superior fund performance.
2. Substitute Products/Services.
- Many are available, but switching costs may be high.
-- MFs may have fees and/or loads which aid in retaining the investor and to discourage switching.
-- Switching between funds can also create a taxable event which also discourages switching.
3. The Potential Entry or New Competitor/Barriers to Entry.
- Can be viewed as an easy market to enter given the explosive rise in MFs available today when .
compared their number in previous years.
4. The Market Power of the Input Suppliers.
- Suppliers (the behemoths) have a strong competitive force.
- Their MFs lead the industry in performance which allows them to command higher price .
5. The Market Power of Buyers.
- Buyers form a weak competitive force over the top performing MFs because the top MFs have .