94/100 HD ECON1194 Final assignment on Market structure, Game theory, and Externalities
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Course
Prices And Markets (ECON1194)
Institution
RMIT University (RMIT
)
An excellent work on Analysis of Market structure (Instant coffee market in Vietnam), Game theory (Nash equilibrium, Pareto optimum), and negative/positive market externalities
Assignment questions:
Question 1: 15 marks – Word limit: 600 words
It is stated that “Instant coffee market in Vietnam is monopoly”.
Would you agree or disagree with the economic statement above?
Clearly confirm your position (how much you agree or disagree with the statement). Explain your
answer by describing the characteristics of the market (including concentration level, degree of
product differentiation and barriers to entry).
Supporting evidence (facts and figures of market characteristics) is required.
The facts and figures of market characteristics can be collected by doing some desk research.
Search and read the industry reports by governmental offices, the news articles or journal
publications of the industry (available in RMIT Library Databases), and select the most recent,
reliable and relevant data to support your answer.
Question 2: 12 marks – Word limit: 400 words
Related to the statement in question 1, one argued that “Instant coffee manufacturers in Vietnam are
price-makers. They can decide the price levels of their products independently from their rivals”.
Would you agree or disagree with the economic statement above?
Clearly confirm your position (how much you agree or disagree with the statement). Explain your
answer by clarifying the relationship between the market structures and firms’ pricing behavior.
Hint: Make sure you review the following key concepts, which are theoretically considered as the
factors affecting the firms’ independence of pricing decision:
The degree of product differentiation.
The concentration level of the market.
Your discussions of firms’ pricing behavior can be positive statements (supported by facts and
figures) or can be normative statements (supported by theory-based reasoning or opinions).
Question 3: 8 marks – Word limit: 300 words
Game theory – hypothetical case analysis:
In a shopping mall in the city, there are two most dominant brands of sports clothes and gears: New
City and Times Good. There are no other sportwear products supplied/sold in the mall. In effect, the
market in the mall can be described as an oligopoly. Each brand makes an economic profit of about
$15,000 a year.
One day, the owner of New City hears rumors that Times Good may soon be adding new designs for
the summer sportwear. New City owner figures that if she does nothing, she would lose many
customers to Times Good; Times Good 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 summer sportwear designs in her
products, but Times Good 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 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.
What is the Nash Equilibrium of this game?
If two firms seek for mutual interests, what is the best strategy for both of them to be
better-off? What is the Pareto Optimum of the game?
Question 4: 5 marks – Word limit: 200 words
One policy-maker presents his urban-planning to the People’s Committee: “Air pollution has become
the public concern in Ho Chi Minh City. During the past decade, the production of transport services
and constructions of housing development projects have caused the city smog, toxic emissions and
greenhouse gases – which are harmful for the living of city people. I would suggest to impose a
policy of emission charge (tax) to the transport service companies as well as to the housing
developers in order to bring about the efficient level of the air pollution”.
Which is the type of market externalities mostly described in the presentation of the
policy-maker?
With the aid of an externality diagram, explain how an emission charge is going to affect
the market activity (demand and/or supply levels, price and output levels) of transports
and housing services.
Question 1:
I strongly disagree with the statement that “Instant coffee market in Vietnam is monopoly” due
to the analysis below.
Concerning the concentration level, unlike in a monopolistic market structure where there is only
one seller, the instant coffee market of Vietnam has many different brands, including G7 (Trung
Nguyen company), Vinacafe (Bien Hoa company), Vinamilk Café (Vinamilk), etc. in the
domestic segment and MacCoffee (Food Empire Holdings), Nescafe (Nestlé) in the foreign
segment. This proves that no single monopolist has full control over the instant coffee
manufacture and thus consumers can choose from different companies. The major share (nearly
80%) of the market is dominated by three major brands: Nescafe (38.3), Vinacafe (37.5%), and
Trung Nguyen G7 (5%). This is followed by Future and Gold Roast with very meager
proportions. Despite several changes in the total market share, Nescafe, Vinacafe and Trung
Nguyen maintained to account for the majority of the coffee market (Euromonitor 2019).
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