Assignment 3 ECON1194 2020C Luu Vu Hong Nhi s3863965 PDF

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ASSIGNMENT 3 – STRUCTURE – CONDUCT – PERFORMANCE ANALYSIS

Course Code

ECON1194C

Course Name

Prices and Markets

Student’s Name

Luu Vu Hong Nhi

Student’s ID

S3863965

Lecturer

Le Tam Vi An

Word Count

1963

Question 1: Analyzing the characteristics of Market structure

I disagree with the statement that the taxi service in Vietnam most closely approximates monopoly. To prove this point, there are three main characteristics factors: concentration, product differentiation and barriers to entry that will be analyzed to deny this statement. Firstly, monopoly market discusses the market share situation manipulated by the largest specific firm in an industry (Foster et al. 2011)). However, Vietnamese 200-company taxi market is known with top 4 major players, namely Mai Linh, VinaSun, VinaTaxi and Grab (Appendix 1). To elucidate, despite the decline in market share, VinaSun still captured a major percentage of HCMC as the leading taxi market region in Vietnam, followed by Mai Linh and TaxiGroup in HaNoi (WFMJ 2020). In 2020, these top companies account for nearly around 50% of the total 174.267 taxi cars which is reported to decline significantly by 50-60% amid Covid-19 in Vietnam with 17,000 cars of Mai Linh, approximately 13,000 cars of Grab, 4.921 cars of VinaSun, 3000 cars of VinaTaxi and 2,000 cars of TaxiGroup (MOT 2020; Kinh Huu 2018; TuoitreNews 2020; SenseMedia 2020; TaxiGroup 2020). Hence, there few firms dominate the Vietnam taxi market and they are competing significantly with each other. As Grab becomes a strong competitor joining in the Vietnamese Taxi industry compared to traditional taxi that make reducing revenue of VinaSun Linh which accounts for major market share in Vietnam taxi (Mordor Intelligence 2020). To recap, the taxi service in Vietnam is dominated by few major firms which do not belong to the monopoly market. Secondly, it is obvious that the purpose of all taxi brands is to transport passengers to any destination. Therefore, we can conclude that the Taxi Service in Vietnam is a homogenous product. However, the taxi industry divides into two segments are technological taxi and traditional taxi that differentiated in comfortability and service convenience for passengers. The firms can distinguish their product from others by innovating app taxis. The technological taxis offer a convenient experience of booking a taxi via the internet that can improve time and fare predictability to avoid overcharging by drivers and take passengers into their destination faster. The technological taxi also provides a different service that public identification of passenger’s drivers to ensure the safety and customers also can feedback the professional of drivers (Wee 2017). In terms of traditional taxis like VinaSun or Mai Linh, passengers will book a taxi throughout calling for the operator to arrange drivers for them. There will be an automatic watch to count how much kilometres will correspond to money and passengers would not know how much they have to pay until they come to their destination (Mai 2019). As a result, the taxi service in Vietnam belongs to homogeneous and product differentiation that deny the monopoly market of Vietnam Taxi market as monopoly market indicates only product differentiation.

Finally, the newcomers will have some difficulties entering the Vietnamese Taxi market. In order to set foot on the taxi service in Vietnam, new firms would have a huge amount of capital because they have to pay for the automobile, hiring drivers, setting up office space and distribution cost (Lahuti 2018). The new firms also have to invest lots of money in advancing technology to compete with technology taxi companies like Grab which is the popular brand investing in technology including Moca e-payments or setting Grab app than other players with $100 millions of initial capital and adding $500 million investment (Cong 2019). Based on these requirements, the small firms will have lots of burden to join in the market. While with the big corporations that have a large capital, the company can invest in these requirements and make profit in the long run thanks to economics of scale - the more firms produce, the lower average cost (Lumen n.d). Besides, small firms that want to enter the Vietnam Taxi market also have to face brand awareness issues as Grab, VinaSun and Mai Linh have built a strong brand recognition in Vietnamese passengers. Overall, Vietnam's taxi market indicates a high barrier to entry with a large capital investment, economy of scale and updating technology.

Question 2: Analyzing the pricing strategy of this taxi company Price makers are producers who can manipulate the price of its goods as there are no substitutes (Banterle et al. 2020). While price takers are people who can’t change the higher price than the market price to maintain customers and market share (MyAccountingCourse n.d). In this case, products/services are differentiated by owning unique technology-based taxi services that competitors can’t copy easily to attract customers. Compared to competitors, they have enough market power which is the ability of a firm to change their price without losing its customers to competitors (Kenton 2020). The more differentiated firms are, the greater power to set their own prices (Shapiro 1998). Therefore, the pricing strategy of this company is price maker. As mentioned, Vietnam's taxi service market is known for the homogeneous product/service for serving customers' transportation purposes. However, the market penetration of ridehailing firms such as Grab, Uber or Be raises the need for existing taxi companies to use nonprice competition strategies including marketing or innovation instead of price war to compete and boost sales while attracting customers (Muley n.d). One of the advantages of non-price competition is not only gaining more profitability than selling lower price for products, but also avoiding the risk of price war in the market (BoundlessMarketing n.d). The

firm offers non-price competition based on creating technology-based to respond to the customer’s demand that competitors can’t copy. Hence, customers will try to buy unique products and bargain less as they have no choice. For example, Grab is becoming more popular than VinaSun, a traditional taxi as applying differentiation of technology to attract customers (Le 2018). Price discrimination indicates company charge different prices for different segments of customers to the same product (Economicsonline n.d). In order for successful price discrimination, the market needs to satisfy 3 requirements, namely firms’ ability to possess some degree of market power, separate customers and prevent arbitrage. Vietnam’s taxi market only can own some degree of market power as mentioned but to satisfy all requirements, we can consider the ride-hailing in Vietnam as a monopoly market as Grab dominates more than 70% of Vietnamese ride-hailing market (ReportLinker 2020). Moreover, Grab can apply to the separate customer by applying 2 vehicles: motorbike and car for different groups of customers. Besides, Grab cooperated with FPT to develop AI technology that became an exclusive firm compared to competitors (Grab n.d). Question 3: Reflection on the Industry Talk Session Throughout the Industry Talk session with Mr. Henry Dinh about the beer industry, determine the beer’s company behaviors in competition based on company level, brand level and barriers to entry. Mr. Henry gave out that despite many beer brands launched in the market, a few firms controlled all brands. Firstly, at company level, the bigger the company is, the larger economies of scale the company has with more advanced technology and lower cost. For instance, AB InBev is a large company with increasing negative working capital but low operating cost thanks to the negotiation and technology investment capabilities. Secondly, at brand level, many firms differentiate taste by creating premium products, marketing or machine innovation as a key to compete. Moreover, in the beer industry, pricing strategies corresponding to product differentiation do not rely on cost production but the consumers’ payment willingness. Furthermore, the beer industry has high barriers to entry with legal requirements due to alcohol-based ingredients and costly complicated mega breweries processes. However, the technological innovation allows smaller firms to operate and compete with small scale microbreweries to discover further new unique tastes which keep safe and sufficient beer’s good quality without much investment. Hence, the craft beer trend as higher-level innovation

capacity was boomingly introduced by many entrepreneurs because of lower barriers to entry and the relaxation in legal requirements compared to the industry giants. Nowadays, based on technology of producing home breweries, people can create their own breweries at home with the tastes they like. That is an aspect of the changing landscape of the beer industry. The economy of scale, huge capital working and innovation technology factor in this Industry Talk related to the theory of barrier to entry in Oligopoly market of Prices & Markets course.

Question 4: Game Theory - Hypothetical case analysis

New City

Add New Designs Do Nothing

Times Good Add New Designs $10,000; $10,000

Do Nothing

-$2000; $20,000

$20,000; -$2,000

$15,000; $15,000



New City



If Times Good decides to add new designs, the best option for New City is to add new designs because they will receive the profit of $10,000 which is better than loss of $2,000 and if Times Good chooses to do nothing, the best strategy for New City is adding new designs as the payoff received is $20,000 that is higher than $15,000.



Times Good



If New City decides to add new designs, the best option for Times Good is adding new designs as they will have a payoff of $10,000, which is better than loss of $2,000 and if New City chooses to do nothing, the best strategy for Times Good is to add new designs because they will receive profits of $20,000 that is higher than $15,000.



Overall, if there is no collusion, it seems like that both brands would use the strategy of adding new designs.



Therefore, the Nash equilibrium of both firms is considered as “add new designs, add new designs> with the payoff ($10,00; $10,000) because each brand lacks any incentive to consider their initial strategy, despite the other firm’s option.



If Times Good and New City have collusion and they seek for mutual interests, both of them should do nothing as the market share will not be fluctuated at this process. Each firm can receive $15,000 in economic profit for a year. As a result, the Pareto Optimum of the game is “Do Nothing; Do Nothing” with the payoff ($15,000; $15,000).

Question 5: Investigate the market failure of the taxi market Externalities are positive or negative effects of producing and consuming towards third parties (RMIT lecture slides). Externalities is a significant result in market failure as the price equilibrium does not reflect true costs and benefits of its products accurately (Investopedia n.d). An example of negative externalities in the automobile production is pollution. The pollution is released throughout the car’s life cycle including car operation and fuel production (ucsusa 2018). Nowadays, increasing demand for cars in Vietnam leads to higher production capacity and innovation throughout technology. Therefore, the rise of mineral extraction and production of raw materials of cars can cause environmental impacts. For example, iron gets into steel that accounts for most of the mass in cars or plastics, which are made from petroleum can cause energy consumption, air pollution and release of toxic substances into the environment (greenercars n.d).

Supply illustrates the responsibility of firms for their private cost. When the firm did not suffer any external cost in production, they will manufacture more cars than the quantity demanded in the market. Consequently, the deadweight welfare loss occurs which indicates over-allocation. The social cost of car production is high because of social pollution. To restrict, the governments can implement taxes incidence from manufacturers to diminish the pollution (oecd n.d). Applying the taxes, the demand will decrease as the tax of emission will make producers in the car industry accountable for extra expense to cover the losses incurred by emission taxes. So, the price will increase, the buyers will pay more and producers will receive less after tax (Pmarket1 up to Popt1). Overall, the taxes can discourage market activity and the quantity of supply will decrease (Qmarket down to Qopt)

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APPENDIX

Appendix 1...