EJC Econs H2 N2019 Paper 2 SAMS

1 2019 A Level Suggested Answers You should seek to attempt the Qn Analysis, identify the relevant points and construct the coherent arguments (selectively) before referring to this set of suggested answers in order to maximise your learning. Essay 1 According to the Competition and Consumer Commission of Singapore (CCCS), the takeover of Uber by Grab in Singapore has led to ‘a substantial lessening of competition’. This has made it harder for new competitors to enter the ride-hailing market. Source: Adapted from Channel NewAsia, 5 July 2018 (a) Explain one reason why consumers might be better off and one reason why consumers might be worse off from Grab’s takeover of Uber. [10] Question Analysis Approach Command Word Explain: 1) One reason why consumers might be better off 2) One reason why consumers might be worse off Question Type How characteristics/strategy of firms affect impacts on consumers Start Point Grab taking over Uber (Merger/Acquisition) End Point Consumers are better off or worse off in terms of consumer surplus, consumer choice – quality and variety Content & Context Content Market Structure – Monopoly/Oligopoly Internal economies of scale Context Ride-hailing market Sample Essay Introduction The takeover of Uber has transformed the ride-hailing market in Singapore to a less competitive one. As such, the characteristics and strategies of Grab would differ from before and this would have an impact on consumer’s welfare in terms of consumer surpl us, which is the difference between the amount consumers are willing and able to pay and the amount they actually. It would also impact consumer choice, which includes variety and quality of service provided.

2 P1: Consumers are better off – Higher Consumer Surplus Grab’s takeover of Uber will benefit consumers in terms of passing off cost savings to consumers in terms of lower prices, hence increasing their consumer surplus. Grab will now be providing ride-hailing services for ex Uber customers, which means that they have scaled up their operations. As such, Grab is able to reap internal economies of scale (IEOS), which refers to unit cost reductions that accrue to a firm as a result of expanding the firm’s scale of production. Grab can now capitalise on mar keting economies in advertisement. As the only ride -hailing firm in Singapore, it can now advertise its services across the entire island, which gives them the ability to ask for discounts from advertising companies for their bulk purchase. At the same time, with a higher capital, they are at less risk of defaulting loans. Commercial banks in Singapore will be more confident of Grab’s prospect and hence may offer Grab lower interest rates for loans. Both these instances result in cost savings for Grab. As seen in Figure 1, Grab initially produces ride -hailing services at the output level Q 1 at