The industry and marketplace in which the MTR Corporation operates:
The MTR Corporation operates in a number of industries including the railway construction and maintenance industry in Hong Kong since 1975. However, it has expanded to many different countries and continents in recent years including operating the Hangzhou, Shenzhen and Beijing lines as well as lines overseas in Stockholm, London and Melbourne. Not only is the MTR Corporation involved in railway industry, it is also involved in the property development, rental and management industries in Hong Kong and Mainland Chinese shopping centres in Beijing and Shenzhen. The MTR Corporation would be in a monopolistic market as it is the only railway system in Hong Kong. The MTR Corporation is a firm which still only operates in an Oligopoly meaning that two or more firms dominate a majority of the market.
Why this market structure was selected and why we eliminated the alternative types:
The MTR Corporation is still only considered to operate in an oligopolistic market because it doesn't dominate a majority of the markets it is involved in. However it is close to doing so, with the MTR Corporation owning approximately 41.6% of all transport modes in Hong Kong. It can be considered to be a part of the transportation industry as it operates the only train system in Hong Kong which means it is working in a monopolistic structure as it is the only railway system in Hong Kong. However, it also operates a range of railways around the world such as the Melbourne Metro and Stockholm Metro. It is also in the property development, rental and management industries as it has been involved in the constructions of different estates such as Mainland Chinese shopping centres in Beijing. It has also invested in Hong Kong, for example, it has helped in the construction of the Heng Fa Chuen housing estate as well as the shopping centre there.
Government Intervention:
MTR Corporation limited is quite a special case when it comes to its implications with the government as it was once a government owned company. Whilst it still holds 70% of the company shares, the government privatised the company in October, 2000. Whilst the government could intervene with the MTR’s operations, it doesn’t help nor hinder its growth directly.
Despite being major shareholders, the HK government does not favour the MTR limited directly. MTR limited receive 0 subsidies from the government and are taxed normal Hong Kong law rates whilst being one of the only public transport companies in the world to make a profit. The Hong Kong government does not necessarily set floor prices on consumer ticketing, but have a history of making deals with the MTR to reduce their prices to favour the consumers.
This being said, the Hong Kong government has helped the MTR in others ways that prove to be mutually beneficial. The government strives to expand the railway network to accommodate to the needs of Hong Kong’s growing city. To help both parties, the government sells cheap land to the MTR that they then have to develop into a functioning transit line. Meanwhile, MTR limited can use the land above the station for their own profit, such as developing shopping malls or selling the land to residential development firms.
At the moment, the HK government and MTR have a good relationship that is mutually beneficial through the development of new stations and lines. The MTR hold a monopoly over the railway network in Hong Kong, hence there are no worries that the government may look to other companies for further development. However, this relationship is mostly driven of the profit the MTR Corporation are able to make from developing the land they are given to operate new stations. Hong Kong is a fairly small island, it’s not impossible to imagine that in 100 years, there will be no more land left that needs railway access. If this happens, the MTR may well be much more reluctant to accept fare price reduction plan from the government.
The government might also choose to sell their shares in the MTR limited. This would increase government incentive to raise taxes and intervene with the MTR due to their no longer being as much mutual benefit from the two working together. This could lead to implementing a price ceiling on the price of their services or add new laws to restrict how they operate.
Implications of government intervention in the present and future:
It is highly likely that no individual intervention will affect the companies operation due to the MTR running on such a high profit. Any negative intervention by the government in the MTR railway service operations (such as a price ceiling on ticket prices, or higher taxes on importing required capital goods), can largely be overlooked by the company due to their immense profit in property development. Giving the MTR subsidies to lower the price of their services would not have much of an impact on their market, simply due to the high percentage of the population already using their services. If the government were to apply new taxes affecting their housing development sector, again the MTR Corporation limited would not feel much of an impact due to the guaranteed high consumer demand for housing near train stations. The consumer demand for property near MTR stations is relatively elastic, hence a small change in price would not deteriorate the consumer demand.
However, if multiple government interventions were to affect the MTR negatively, we could see a rise in the railway service price. This could reduce consumer demand as consumers look towards alternative transport services such as buses and taxis.
Is it possible to establish a new firm providing the same goods and services?
At the current time, there is no possible room for another railway system to operate in Hong Kong, as the MTR is the only train firm to currently operate. It also may not be possible to create another transport system, as in Hong Kong, there is already an established structure of public transport, including buses, mini buses, ferries and taxis.
As Hong Kong is very densely populated, there would be no physical space for another railway network to perform in Hong Kong. The MTR already connects a large number of Hong Kong areas to each other, and while the MTR line can be extended, there could not be another corporation competing in the same field.
If another firm were to operate and have a fully functioning railway network, it may be hard for this firm to break the brand loyalty that Hong Kong citizens hold towards the MTR Corporation. However, if this firm were to establish train stations where there are not MTR stations, for example Sai Kung and Victoria Peak, they may gain many passengers who live/work in these regions willing to travel on that railway line. Because of these reasons, it would be highly unlikely for another railway system to function fully in Hong Kong while the MTR Corporation operates.
The MTR Corporation operates in a number of industries including the railway construction and maintenance industry in Hong Kong since 1975. However, it has expanded to many different countries and continents in recent years including operating the Hangzhou, Shenzhen and Beijing lines as well as lines overseas in Stockholm, London and Melbourne. Not only is the MTR Corporation involved in railway industry, it is also involved in the property development, rental and management industries in Hong Kong and Mainland Chinese shopping centres in Beijing and Shenzhen. The MTR Corporation would be in a monopolistic market as it is the only railway system in Hong Kong. The MTR Corporation is a firm which still only operates in an Oligopoly meaning that two or more firms dominate a majority of the market.
Why this market structure was selected and why we eliminated the alternative types:
The MTR Corporation is still only considered to operate in an oligopolistic market because it doesn't dominate a majority of the markets it is involved in. However it is close to doing so, with the MTR Corporation owning approximately 41.6% of all transport modes in Hong Kong. It can be considered to be a part of the transportation industry as it operates the only train system in Hong Kong which means it is working in a monopolistic structure as it is the only railway system in Hong Kong. However, it also operates a range of railways around the world such as the Melbourne Metro and Stockholm Metro. It is also in the property development, rental and management industries as it has been involved in the constructions of different estates such as Mainland Chinese shopping centres in Beijing. It has also invested in Hong Kong, for example, it has helped in the construction of the Heng Fa Chuen housing estate as well as the shopping centre there.
Government Intervention:
MTR Corporation limited is quite a special case when it comes to its implications with the government as it was once a government owned company. Whilst it still holds 70% of the company shares, the government privatised the company in October, 2000. Whilst the government could intervene with the MTR’s operations, it doesn’t help nor hinder its growth directly.
Despite being major shareholders, the HK government does not favour the MTR limited directly. MTR limited receive 0 subsidies from the government and are taxed normal Hong Kong law rates whilst being one of the only public transport companies in the world to make a profit. The Hong Kong government does not necessarily set floor prices on consumer ticketing, but have a history of making deals with the MTR to reduce their prices to favour the consumers.
This being said, the Hong Kong government has helped the MTR in others ways that prove to be mutually beneficial. The government strives to expand the railway network to accommodate to the needs of Hong Kong’s growing city. To help both parties, the government sells cheap land to the MTR that they then have to develop into a functioning transit line. Meanwhile, MTR limited can use the land above the station for their own profit, such as developing shopping malls or selling the land to residential development firms.
At the moment, the HK government and MTR have a good relationship that is mutually beneficial through the development of new stations and lines. The MTR hold a monopoly over the railway network in Hong Kong, hence there are no worries that the government may look to other companies for further development. However, this relationship is mostly driven of the profit the MTR Corporation are able to make from developing the land they are given to operate new stations. Hong Kong is a fairly small island, it’s not impossible to imagine that in 100 years, there will be no more land left that needs railway access. If this happens, the MTR may well be much more reluctant to accept fare price reduction plan from the government.
The government might also choose to sell their shares in the MTR limited. This would increase government incentive to raise taxes and intervene with the MTR due to their no longer being as much mutual benefit from the two working together. This could lead to implementing a price ceiling on the price of their services or add new laws to restrict how they operate.
Implications of government intervention in the present and future:
It is highly likely that no individual intervention will affect the companies operation due to the MTR running on such a high profit. Any negative intervention by the government in the MTR railway service operations (such as a price ceiling on ticket prices, or higher taxes on importing required capital goods), can largely be overlooked by the company due to their immense profit in property development. Giving the MTR subsidies to lower the price of their services would not have much of an impact on their market, simply due to the high percentage of the population already using their services. If the government were to apply new taxes affecting their housing development sector, again the MTR Corporation limited would not feel much of an impact due to the guaranteed high consumer demand for housing near train stations. The consumer demand for property near MTR stations is relatively elastic, hence a small change in price would not deteriorate the consumer demand.
However, if multiple government interventions were to affect the MTR negatively, we could see a rise in the railway service price. This could reduce consumer demand as consumers look towards alternative transport services such as buses and taxis.
Is it possible to establish a new firm providing the same goods and services?
At the current time, there is no possible room for another railway system to operate in Hong Kong, as the MTR is the only train firm to currently operate. It also may not be possible to create another transport system, as in Hong Kong, there is already an established structure of public transport, including buses, mini buses, ferries and taxis.
As Hong Kong is very densely populated, there would be no physical space for another railway network to perform in Hong Kong. The MTR already connects a large number of Hong Kong areas to each other, and while the MTR line can be extended, there could not be another corporation competing in the same field.
If another firm were to operate and have a fully functioning railway network, it may be hard for this firm to break the brand loyalty that Hong Kong citizens hold towards the MTR Corporation. However, if this firm were to establish train stations where there are not MTR stations, for example Sai Kung and Victoria Peak, they may gain many passengers who live/work in these regions willing to travel on that railway line. Because of these reasons, it would be highly unlikely for another railway system to function fully in Hong Kong while the MTR Corporation operates.