International Baccalaureate

Extended Essay
Economics

Research Question - What were the factors that affected

the demand for 4G handsets in Aggarwal Market,

Muzaffarnagar due to launch of Jio sim.

Title – Factors affecting demand for 4G handsets.

Personal Code: gqp448

Word Count: 3783

Examination Session: May 2018

 Table of Contents

Introduction ..................................................................................................................... 3
Background information ................................................................................................... 4
Methodology: -................................................................................................................. 5
Analysis of data ................................................................................................................ 6
complementary goods ...................................................................................................... 6
Price of 4G handset .......................................................................................................... 8
Tastes and preferences ................................................................................................... 13
Market structure ............................................................................................................ 15
Conclusion...................................................................................................................... 20
Limitations ..................................................................................................................... 20
Bibliography ................................................................................................................... 21
Bibliography ................................................................................................................... 22
Bibliography ................................................................................................................... 23
Appendix 1 ..................................................................................................................... 24
Appendix 2 ..................................................................................................................... 25
Appendix 3 ..................................................................................................................... 26
Analysis of the results..................................................................................................... 30

2
 Introduction

Reliance Jio Infocomm Limited, or Jio, is a LTE mobile network operator in India, is an

owned subsidiary of reliance industries headquartered in Mumbai, Maharashtra that

provides wireless 4G LTE service network (without 2G/3G based services) and is the

only 'Volte only' (Voice over LTE) operator in the country which lacks legacy network

support of 2G and 3G, with coverage across all 22 telecom circles in India.1 The

research aims to investigate the factors that affected the 4G market for handset due

to the launch of jio sim in Muzaffarnagar. The main locality chosen for primary research

is the Aggarwal market, Muzaffarnagar. The reason why this locality has been selected

is that this place has the largest number of phone dealers in Muzaffarnagar.
2Therefore, by investigating in this region I can get accurate information of the effect

on the 4g market for handset due to launch of jio 4G handset sim.

We are living in a developing world where everyone wants to use the latest available

technology. Therefore, getting that technology in free has affected the demand on 4G

handsets. The research will hence be focussing on how the demand of 4G handsets

is affected by the new network provider Jio. Beside the price factors there are non-

price factors that affect the demand for phones. The research is related to the

economic theory of demand and supply, where there are various strategies taken by

Reliance Jio which affect the demand for the 4G handsets. One important factor is

price which would affect the quantity demanded directly. It is only because of price Jio

has captured whole of the market share. As theoretically represented by law of

demand, there is an inverse relationship between quantity and price consumed of a

1
https://www.quora.com/Is-Reliance-and-Reliance-Jio-two-different-companies
2
https://www.justdial.com/Muzaffarnagar/Mobile-Phone-Dealers-Sony/nct-11213620

3
good. To further investigate on my research question I will consider the demand and

supply for 4G handsets. This research will also consider the price elasticity of demand

for 4G handsets and Jio sim. The research would also consider the Oligopoly market

structure and now the pressure of mutual interdependence has also led to impacting

demand of 4G handsets.

Background information

Jio, which kicked off operations on September five, 2016, added 108.9 million

subscribers on the network as of March 31, 20173. “Jio is dedicated to offer its clients

the best price and the world’s most low-cost information and voice offerings,” Ambani

said4. In the course of the fourth quarter, the company continued to solve its

interconnection congestion troubles with the leading telecom operators. “There has

been noteworthy improvement in local access in current weeks. At the same time as

NLD interconnection stays a trouble in some service regions, Jio is dedicated to fixing

this on the earliest and hopes for co-operation from the other operators,” the telco said.

Jio, which has the world’s biggest greenfield 4G LTE Wi-Fi broadband network, with

over a hundred,000 mobile towers, will add any other a hundred,000 towers to the

community in the coming months. It's far the simplest operator which has deployed

Pan-India LTE network across the 800MHz, 1800MHz and 2300MHz bands, giving it

fantastic capability gain.The telco had earlier this year launched Jio prime membership

for its initial clients. Jio top members are getting limitless advantages, together with

host of other advantages for a nominal, one-time enrolment fee of Rs ninety-nine.

3
https://telecom.economictimes.indiatimes.com/news/reliance-jio-witnessing-largest-
migration-from-free-to-paid-services-in-history-mukesh-ambani/58344281
4
https://telecom.economictimes.indiatimes.com/news/reliance-jio-witnessing-largest-
migration-from-free-to-paid-services-in-history-mukesh-ambani/58344281

4
Inside a month of saying the Jio prime offer, over 72 million Jio customers signed up

for JIO top5. Jio further announced its Jio Dhan Dhana Dhan plan starting at Rs 309.

Rs 309 plans gives unlimited SMS, calling and information (1GB in step with day at

4G speed) for 3 months on first recharge. The enterprise additionally announced the

Rs 509 plan with 2GB per day statistics. “With a purpose to smoothen the migration

from loose to paid services, Jio has applied simple, affordable and regulatory

compliant plans in purchaser interest,” the telco stated Jio lately released worldwide

roaming provider, that is available across the world. Jio also stated that it's miles

observing over 110 crore GB of statistics site visitors in keeping with month and 220

crore voice and video minutes a day, turning into the largest network globally in

phrases of records carried and contributed to India turning into the leading country

within the global for cell information usage.6

Methodology: -

In primary research, a total of 75 people were surveyed amongst which 50 were

customers and 25 were sellers. There were two surveys done one was for the sellers

in the Aggarwal market and one was for the customers. With the primary data collected

by the surveys, the effects of the various factors on the demand for 4G handset in

Aggarwal Market would be analysed. Secondary source would also be utilized to aid

the research, most significantly in finding out the change in the price of the 4G

handsets due to the launch of jio sim.

5
https://timesofindia.indiatimes.com/business/india-business/reliance-jio-goes-pay-from-
saturday-gets-72-million-prime-subscribers/articleshow/57946766.cms
6
https://telecom.economictimes.indiatimes.com/news/reliance-jio-witnessing-largest-
migration-from-free-to-paid-services-in-history-mukesh-ambani/58344281

5
The factors affecting the demand for 4G handsets would be determined by the use of

some economic theories which includes the demand and supply, finding out the

change in demand for the complementary goods. Moreover, the prices would be

considered which will compare the phone models and also find out the profits earned

by the sellers after jio sim was launched. Oligopoly market structure would also be

taken in consideration which will include the way these companies compete and the

research will also include the details about the tastes and preferences of the people.

Analysis of data
Based on the secondary and Primary research the factors that affected the demand

for 4G handset due to the launch of jio sim are-

1. Complementary Goods

2. Price of 4G handset

3. Tastes and preferences

4. Market Structure

complementary goods

A complement refers to a complementary good or service that is used in

conjunction with another good or service. Usually, the complementary good has

little to no value when consumed alone, but when combined with another good or

service, it adds to the value of the offering.7

7
http://www.investopedia.com/terms/c/complement.asp

6
A 4G handset is a device in which a 4G sim is inserted to access fast internet.

However, it will not work without a 4G sim. Therefore, the 4G sim must be compatible

with the handset hence, the 4G services can only be consumed with a 4G handsets

which created the complementary impact of consuming the higher speed data services

and 4G must have compatible handsets of fourth generation devices. The factors of

the complementary impact play crucial role of the exponential growth in the need of

4G handset to enjoy the higher speed data of the new generation fast data.

The factors available after the launch of jio services creates environment of

exponential growth not only for high speed 4G data but also for compatible 4G

handsets. 8All this growth in 4G handsets demand attributes to complementary effects.

8
https://economictimes.indiatimes.com/tech/internet/consolidations-done-telecom-looks-to-
dial-up-growth-in-2018/articleshow/62314319.cms

7
The graph above illustrates the concept of complementary goods. It shows how the

demand of 4G handsets is increased from Q to Q1 due to increase in demand for 4G

sim. Thus, demand curve shifted to the right from D to D1 and price increased from P

to P1. This is also supported by the primary data collected (appendix 1 question 2) in

seller survey.9

DID THE DEMAND FOR 4G HANDSETS

INCREASE AFTER JIO

20%

80% YES
NO

10

It reflects an increase in demand for 4G handsets do to an increase in demand for Jio

sim.11

Price of 4G handset

Price is another factor that influences demand. Demand is an economic term that

refers to the amount of products or services that consumers wish to purchase

9
https://telecom.economictimes.indiatimes.com/news/reliance-jio-driving-demand-for-4g-
volte-phones-sim-porting-among-users-counterpoint-research/58143228

11
Appendix 1, Question 2

8
at any given price level12. in fact, according to law of demand, it states that quantity

purchased varies inversely with price. In other words, the higher the price, the

lower the quantity demanded, vice versa, ceteris Paribus.13

The demand curve is downward sloping due to the law of diminishing marginal utility.

The law of diminishing marginal utility is a law of economics stating that as a

person increases consumption of a product while keeping consumption of other

products constant, there is a decline in the marginal utility that person derives

from consuming each additional unit of that product.14

12
https://www.myaccountingcourse.com/accounting-dictionary/demand
13
https://www.investopedia.com/terms/l/lawofdemand.asp
14
https://www.investopedia.com/terms/l/lawofdiminishingutility.asp

9
A, B and C are points on the demand curve. At point A, the quantity demanded is Q1

and the price is P1. The demand curve shows the negative relationship between price

and quantity demanded. The higher the price of a good the lower the quantity

demanded (indicated through B), and the lower the price, the higher the quantity

demanded, (indicated through C).15

Demand for mobile phones and internet services is relatively inelastic. Inelastic is an

economic term used to describe the situation in which the quantity demanded or

supplied of a good or service is unaffected when the price of that good or service

changes16. Phones and internet have become a need for everyone. 17 Thus, as seen

above in the figure, demand curve is relatively steep. It is because demand for 4G

handset tends to be inelastic (PED<1) that Jio had to launch the 4G sim free. Within

inelastic demand only a very big change in price can bring about a required change in

demand.

With the launch of Jio sim, Reliance Jio Infocomm Limited also launched a 4G handset

at a very low price.18 Also, to compete with Jio other companies also launched low

price 4G handsets such as swipe elite 2, Samsung Z2, Reliance Lyf Wind 6,

Panasonic P55, Karbonn Aura, Intex Cloud String V 2.0, Intex Aqua Secure, etc. 19

Due to the prices of 4G handsets falling after the launch of Jio the quatity demand of

4G handsets have increased.

15
https://www.investopedia.com/university/economics/economics3.asp
16
https://www.investopedia.com/terms/e/inelastic.asp
17
https://www.telegraph.co.uk/news/uknews/2461923/Internet-and-mobile-phones-become-
all-pervasive-in-modern-society.html
18
http://www.financialexpress.com/industry/technology/reliance-jio-to-launch-indias-
cheapest-4g-volte-smartphone-at-rs-1000-report/446966/
19
https://economictimes.indiatimes.com/slideshows/tech-life/8-cheap-android-smartphones-
with-volte-support/intex-aqua-secure/slideshow/53978855.cms

10
This led to an extension in demand as price fell from P to P1 and quantity demand

increased from Q to Q1. There was a movement along the curve from A to B.

3G handsets and 4G handsets

Third-generation (3G) smartphones are headed for a quick exit in India, with prices of the more

advanced 4G devices plunging and plans by large manufacturers to completely withdraw from

the segment in six months20. 4G handsets came more in use after Jio came. This occurred

because Jio offered services at no cost. Many cellular telephone companies released a variety

of 4G handsets due to an growth in the demand for 4G.

20
https://tech.economictimes.indiatimes.com/news/mobile/4g-popularity-to-ensure-early-
demise-of-3g-smartphones/54438366

11
According to the survey the retailers stated that now each and every person now demands a 4G

handset and now the retailors are also able to satisfy their demand because now 4G handsets

are available at every price level.

The sellers in Aggarwal market also said that the demand for 3G smartphones has been

declining over the past two or three months, in the run-up to the launch of services by Reliance

Jio Infocomm.21

Prices of 3G handsets Prices of 4G handsets

Before jio Before Jio After Jio

Apple iPhone 5 ₹15,999 IPhone SE 26000 18000

Micromax Bolt ₹4000 Micromax Canvas 14000 9000

LG Stylo 2 ₹8000 LG Q6 17000 12000

Asus zenfone Max 11000 700022

Asus Zenfone 5 ₹6000

Table above shows the prices of 3G handsets, and prices of 4G handsets before the launch of

Jio and after the launch of Jio. As shown above there is a slight difference in the prices of 3G

handsets and 4G handsets after Jio. Due to the short difference between the prices of 3G and

4G handsets people have shifted their demand to 4G handsets and which led to an increase in

the demand for 4G phones.

21
https://economictimes.indiatimes.com/tech/hardware/3g-smartphone-demand-declining-
handset-makers-like-samsung-micromax-and-others-to-launch-only-4g-
phones/articleshow/54437411.cms
22
https://pricebaba.com/mobile/pricelist/4g-phones-in-india

12
Tastes and preferences

The contemporary world is changing hastily. The internet is leading in the 21st century.

People born in this century are known as the digital natives. The internet has all the time

modified the manner human beings do their business. The demand of mobile and internet is

increasing day by day, they are becoming the preferred means of personal and professional

communication, giving a new dimension to the telecom industry. To meet up the user’s demand

more and more advancement is being done in the field of communication.23 The demand of

mobile user is ever increasing in this world of digital systems. Consumers demand more from

their technology. Whether it is a television, cellular phone, washing machine or refrigerator,

the latest technology purchase must have new features. With the advent of the Internet, the

most-wanted feature is better, faster access to information.24

Similarly, it happened in the 4G industry high demand from technology led to people

demanding 4G as it has a lot of benefits.25

This clearly is going without saying that 4G phones provides fast internet speeds. Improved

bandwidth makes faster data transfer a possibility, giving many benefits in cell phones. As

compared to other systems consisting of Wi-Fi, 4G networks have a mile’s larger span. Using

a Wi-Fi restricts the user to a constrained area, making them dependent on hotspots. 4G is a

community that offers an insurance of around 30 miles in conjunction with overlapping ranges,

presenting with uninterrupted connectivity all of the time. Consequently, the use of a

smartphone that is 4G enabled offers an advantage over other customers. Moreover, he security

23
http://ijmcr.com/wp-content/uploads/2015/11/Paper11100-11031.pdf
24
http://pubs.sciepub.com/ajeee/2/3/6/
25
https://telecom.economictimes.indiatimes.com/news/4g-is-essential-for-survival-in-indian-
telecom-industry-aircel-cmo/62474824

13
of a community is a critical difficulty and it's far compromised whilst the use of a Wi-Fi. Using

a 4G cell permit’s you use 4G networks that offer downright privacy, protection and safety.

Beneficial for people at the pass and company organizations, they shield the sensitive records

gift inside the user’s telephones.26 Due to all these benefits of using 4G, consumers have

changed their tastes and preferences by shifting to 4G and by buying 4G handsets. These factors

have changed the tastes and preference of the people and it has also affected the demand for

4G handsets.

As mentioned above due to the new technology and improved 4G facilities people have shifted

their demand to 4G handsets. Illustrated in the graph above the demand curve shifts to the right

from D to D1 causing an increase in the quantity demanded of 4G handsets. The price remains

constant as it is a non-price factor affecting the demand for 4G handsets.

26
http://www.infocusindia.co.in/blog/smartphones/superfast-4g-phones-young-generation/

14
Market structure

Market structure refers to the nature and degree of competition in the market for

goods and services. The structures of market both for goods market and service

(factor) market are determined by the nature of competition prevailing in a

particular market.27 Market for 4G sim is an Oligopoly. An oligopoly is a market

form with limited competition in which a few producers control the majority

of the market share and typically produce similar or homogenous products.

Due to the small number of firms and lack of competition, this market

structure often allows for partnerships and collusion.28

Rank Operator's Name Market Share

1 Vodafone 18.2029

2 Airtel 28.41%

3 Jio 13.71%

4 Idea
18.79%30

The sum of four largest companies market share is 79.11% which is more than 40%.

Based on the concentration ratio, a concentration ratio provides an indication of

27
http://www.yourarticlelibrary.com/economics/market/market-structure-meaning-
characteristics-and-forms-economics/28736
28
https://www.myaccountingcourse.com/accounting-dictionary/oligopoly
29
https://en.wikipedia.org/wiki/List_of_telecom_companies_in_India
30
https://www.news18.com/news/india/733-million-gsm-subscribers-in-india-airtel-leads-
with-28-41-market-share-696040.html

15
the percentage of output produced by the largest firms in an industry.31 If the

market share of four four large companies is more than 40% then the market is said

to an oligopoly.

Under oligopoly there is mutual interdependence (Mutual interdependence exists

within an oligopoly industry because each of the oligopolists has a sizable part

of the market32 ) due to this firms have an incentive to collude or compete. In the case

of 4G sim market firms chose to compete. Thus, when Jio sim was launched at low

price, other 4G companies also reduced their prices.

Price competition:
Price competition is one of many ways that a product or service can compete in the

marketplace. In price competition, two products which are substantially similar are judged by

prospective consumers on their respective pricing, with the purchase made mostly on the basis

of which is cheaper.33

Price competition was a strategy used used by different service providing companies to

compete amongst each other. There were price wars amongst them to compete with each other.

Similarly, companies such as Airtel, Vodafone and Idea wanted to compete with Jio so brought

their prices near to what reliance jio was offering. The data is shown below.

31
Tragakes, Ellie. “7.4 The theory of firms 2 " Economics for the IB Diploma. 2nd ed. Cambridge UP,
2012. 203 Print.).

32
http://economics.csusb.edu/facultystaff/nilsson/personal/capitalism%20text/19-
oligopoly.pdf
33
http://smallbusiness.chron.com/define-price-competition-economics-3886.html

16
PLANS

Reliance Jio

* Rs 309: Unlimited voice calls/SMSs, 1GB (4G) data per day for 56 days

* Rs 349: Unlimited voice calls/SMSs, 20GB (4G) data (10+10) for 56 days

* Rs 399: Unlimited voice calls/SMSs, 1GB (4G) data per day for 84 days

* Rs 509: Unlimited voice calls/SMSs, 2GB (4G) data per day for 56 days

Reliance Jio has earlier offered Rs 309 plan for its existing users, in which they had

to buy Prime subscription for Rs 99. The plan offered 1 GB data per day, unlimited

voice calls/SMSs for 90 days. 34

Airtel:

* Rs 244: Unlimited calls to Airtel to Airtel, 1GB data per day for 70 days, no free

SMS

* Rs 399: Unlimited calls (300 minutes a day/1200 minutes a week), 1GB (3G/4G)

data per day for 56 days, no free SMS

* Rs 349: Unlimited calls (300 minutes a day/1200 minutes a week), 1GB (3G/4G)

data per day for 28 days, no free SMS

* Rs 549: Unlimited calls (300 minutes a day/1200 minutes a week), + 1.25GB

(3G/4G) data per day on 4G handset for 28 days, ..35

34
http://economictimes.indiatimes.com/industry/services/retail/reliance-jio-vs-airtel-vs-
vodafone-vs-other-telcos-which-data-plan-you-should-go-for/articleshow/59562800.cms
35
http://economictimes.indiatimes.com/industry/services/retail/reliance-jio-vs-airtel-vs-
vodafone-vs-other-telcos-which-data-plan-you-should-go-for/articleshow/59562800.cms

17
Vodafone

* Rs 257: Unlimited calls (300 minutes a day/1200 minutes a week), 2GB total,

3G/4G data for 28 days, no free SMS

* Rs 352: Unlimited calls (300 minutes a day/1200 minutes a week), 1GB (3G/4G)

data per day for 28 days, no free SMS

* Rs 445: Unlimited calls (300 minutes a day/1200 minutes a week), 1GB (3G/4G)

data per day for 84 days, no free SMS. Vodafone has termed it Survival Kit and is

available for new connections only. The subsequent recharges.36

Idea

* Rs 347: Unlimited calls (300 minutes a day/1200 minutes a week), 1GB (2G/3G)

data per day for 70 days, no free SMS

* Rs 498: 4GB (3G) for 28 days, post that 1GB (3G) for 28 days at Rs 121 for 6

months

* Rs 453: 1GB (3G) data for 84 days (On first time recharge only), unlimited

local/STD calls, no free SMS

* Rs 395: 1GB (4G) data, unlimited local/STD calls, for 84 days. This plan is

available for Mumbai circle Idea users only. 37

36
http://economictimes.indiatimes.com/industry/services/retail/reliance-jio-vs-airtel-vs-
vodafone-vs-other-telcos-which-data-plan-you-should-go-for/articleshow/59562800.cms
37
http://economictimes.indiatimes.com/industry/services/retail/reliance-jio-vs-airtel-vs-
vodafone-vs-other-telcos-which-data-plan-you-should-go-for/articleshow/59562800.cms

18
Thus, due to fall in prices in 4G sim plans by all companies the demand for 4G

handsets have further increased.

Lower prices of 4G sim offered by Jio and other network providing companies have

led to an increase in the demand and the sales of 4G handsets.38

There is a rightward shift in the demand curve from D to D1 and increase in the

quantity of 4G handsets from Q to Q1 as shown above in the graph.

38
https://telecom.economictimes.indiatimes.com/news/reliance-jio-driving-demand-for-4g-
volte-phones-sim-porting-among-users-counterpoint-research/58143228

19
Conclusion
In conclusion the research has managed to find out the various factors that affected

the demand for 4G handsets in Aggarwal market, Muzaffarnagar. The significance of

each factor was measured in each segment of the market using economic concepts

such as demand and supply has been use to analyse the impact of jio sim on the

demand of 4G handsets. It was found out that less price offered by jio had a greater

impact on the demand for 4G handsets in Aggarwal market, Muzaffarnagar. The

research also found out the various ways how firms have competed had created an

oligopoly market structure. It also found out the various price and non-price

competition factors that affected the demand for 4G handsets in muzaffarnagar. This

research as therefore successfully answered the research question in finding out the

different factors that affected the demand for 4G handsets in Aggarwal market,

Muzaffarnagar.

Limitations

However, there were some limitations faced while accomplishing the research such

as the only method of primary research was questionnaires and the sample size was

small therefore outcomes acquired perhaps slightly skewed, and the reliability may not

be approximate. Therefore, the research was limited in certain aspects.

20
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23
Appendix 1

24
Appendix 2

25
Appendix 3
RESULTS OF THE CUSTOMER SURVEY

IF YES

REASON FOR SHIFTING TO JIO

25%

Free data
75% low cost

PUCHASED A 4G HANDSET

9%

Yes
No
91%

26
 JIO PROVIDER BETTER SERVICES THAN OTHE
COMPANIES.

15%

Yes

85% No

IF NO

REASON FOR NOT SHIFTING TO JIO

31%

NETWORK ISSUES
69% SLOW INTERNET

DID THE SIM YOU ARE USING PROVIDED

BETTER SERVICES THAN JIO

23%

Yes
77% No

27
 DID YOU STILL BUY A 4G HANDSET

26%

YES
74% NO

RESULTS OF SELLER SURVEY

SITUATION BEFORE JIO.

27%

LESS SALES OF 4G HANDSETS

53%
LESS SALES OF 3G HANDSETS
20%
MORE SALES OF 4G HANDSETS

28
DID THE DEMAND FOR 4G HANDSETS
INCREASE AFTER JIO

20%

80% YES
NO

DID THE SALES INCREASE

3%

YES
NO
97%

9%

DID THE PROFITS INCREASE

YES
NO
91%

29
Analysis of the results

Since the research mainly focusses on the factors that affected the demand for 4G

handsets, the survey would aim to find out the change in sales for 4G handsets after

the jio sim was launched. The results clearly shows that people shifted their demand

to jio because of free data and better services provided and it also shows that people

who have or who have not shifted to jio still purchased a 4G handset. Many people did

not switch to jio because of the slow internet less services provided by jio. However,

according to the survey 90% people have started using jio since it was launched.

According to the sellers in Aggarwal market there was a very less sales of 4G handset

before jio was launched. They also told that there were less sales, less profits and less

demand for 4G handsets. However, as jio was launched their sales, demand for 4G

handsets and profits started to rise which led to a growth in the mobile industry.

30