U.S. Mutual Funds
Economics of Management
U.S. 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.
Section Requirements
1. a. Producer Classification in tabular style:
Form of
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
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