Prices and Markets
This task is regarded as a holistic record of your learning development throughout the course. It is designed to track, monitor and evidence your learning linked to the main framework of the course ‘Structure – Conduct – Performance’, and based on the knowledge acquired you will demonstrate your critical thinking about firms’ conduct and economic efficiencies as well as your evaluation of public policy for social welfare. It is required for you to produce a piece of written work - responses to four following questions - as your summative assessment for SCP framework and public policy recommendations
Question 1: 16 marks – Word limit: 700 words
Following are several articles about cosmetics market in Vietnam. Read the articles for the information of three main characteristics of the market: concentration level, degree of product differentiation and barriers to entry. Evaluate which type of market structures the cosmetics retailing market in Vietnam most closely approximates to. Make sure you clearly explain how you form the idea of the market structure from the information, facts and figures, given in the articles.
Articles of cosmetics market in Vietnam in 2019:
B&C Company (2019), A dynamic cosmetics market in Vietnam, [online] available at: http://www.b-company.jp/en/2019/09/17/a-dynamic-cosmetics-market-in-vietnam/ (Links to an external site.)
Viet Nam News (2019), VN cosmetics market’s shining potential, [online] available at https://vietnamnews.vn/economy/519921/vn-cosmetics-markets-shining-potential.html#4JDwHC6qfHiOS7sw.97 (Links to an external site.)
VNExpress (2019), Affluence, e-commerce make Vietnam a lucrative cosmetics market, [online] available at https://e.vnexpress.net/news/business/industries/affluence-e-commerce-make-vietnam-a-lucrative-cosmetics-market-3967651.html (Links to an external site.)
Nikkei Asian Review (2019), Hong Kong’s Watsons dives into Vietnam’s crowded beauty market, [online] available at https://asia.nikkei.com/Business/Companies/Hong-Kong-s-Watsons-dives-into-Vietnam-s-crowded-beauty-market (Links to an external site.)
Question 2: 7 marks – Word limit: 400 words
Reflection on the Industry Talk.
The student will have the opportunity to meet the industry partner during the semester. The guest speaker will talk on pricing decisions of a cosmetics company. Write a reflection on this industry talk in a paragraph.
It is mandatory for every student to attend this talk so that they are able to reflect on the following questions:
What was the discussion in the talk?
How can you relate the talk to the theory of market structure and pricing decision in Prices and Markets course?
What can you add to the discussion?
Question 3: 10 marks – Word limit: 300 words
A manager of a pharmacy company stated that: “My company can pretty well set the price it wants for its product, herbal detox pills, because it controls all supplies of essential inputs for the product”.
Which type of monopoly is this company? Explain.
State whether you would expect demand for the company’s product to be relatively elastic or inelastic. Explain the factor(s) likely to be important in determining the product’s price elasticity.
Would you agree or disagree with the statement above that the company can charge any arbitrarily high price for its product? Explain your answer.
Question 4: 10 marks – Word limit: 300 words
Game theory – hypothetical case analysis:
In a shopping mall in the city, there are two most dominant milk firms: ABC and XYZ. There are no other milk products supplied/sold in the mall. In effect, the milk market in the mall can be described as an oligopoly. Each milk firm makes an economic profit of about $15,000 a year.
One day, the owner of ABC hears rumors that XYZ may soon be adding a new walnut and almond flavor in the fresh milk products. ABC owner figures that if she does nothing, she would lose many customers to XYZ; XYZ would make a profit of $20,000 and she will suffer an economic loss of $2,000 a year. If she develops the similar new nut flavor in her milk products, but XYZ doesn’t, the result will be the other way around. However, if she matches her rival’s move, both firms will retain their share of the market but the cost of the new product development will reduce each milk firm’s profit to $10,000 a year.
Construct the game matrix. Clearly define the players, possible actions of the players, and the according payoffs.
If each firm pursues their self-own interest, what is the most likely strategy each of them will follow? Explain. (Hint: Use either dominant strategy or maximin strategy)
What is the Nash Equilibrium of this game?
If two firms seek for mutual interests (collusion), what is the best strategy for both of them to be better-off? What is the Pareto Optimum of the game?
Question 5: 7 marks – Word limit: 300 words
‘Externalities are viewed as a source of market failure’.
Define the concept of externalities.
Give one example industry with a type of externalities and illustrate by a graph how market failure occurs in your example.
In addition, what public policy would you suggest to correct the externality associated with your example?