ACJC H2 Prelim 2024 P2 EQ3 Solutions

3 InJuly2023,GrabannounceditwasacquiringSingapore'sthird-largesttaxi operatorTrans-cab, which has a fleet of more than 2,500 vehicles. The acquisition wouldhave covered Trans-cab’staxi andcar rental business, maintenanceworkshopandfuel pumpoperations. TheStraitsTimes,25July2024(a) Explain howthemarket structureinwhichGraboperatesislikelytoinfluencehowpricesandoutputaredetermined. [10] (b) Discuss whether Grab’s acquisition of Trans-cab will benefit or disadvantagetheconsumersinSingapore. [15]2021Q3–govtinterventionontoconsumers a) ExplainhowthemarketstructureinwhichGraboperatesislikelytoinfluencehowpricesandoutputaredetermined.[10]Questionanalysis: CommandWord “Explain”–requiresstudenttoexplainthecharacteristicsofthemarketstructure(likelytobeoligopoly)andapplyittothecontextoftheride-hailingmarket.Theyshouldalsoshowtherelationshipbetweenthesecharacteristicsandpricing,outputbehaviouroftheoligopolisticride-hailingmarket.Context Ride-hailingmarketConcept Characteristicsandhowthataffectspriceandoutputdetermination Introduction:Singapore’s ride hailing market is considered to be operating inanoligopolisticmarketstructure. These are based on the different characteristicssuchasbarrierstoentry, sizeandnumberoffirms.Thesecharacteristicsinturn,affecthowpricingandoutputdecisionsaremade.Requirement 1: Explaining the characteristics of the ride-hailing market to conclude theoligopolisticmarketstructureThebarrierstoentryof thecar-sharingmarket canbehigh. Thecostbarriertoentrycanbehighduetohighfixedcoststoset upanappfor theprivatetransportservices.Aride-sharingapp must offer a user-friendly experience to both the driver and the passenger, as well asefficiencyusagewithoutlagsorerrors.● For instance, the app must enable easy ride booking/ cancellation/ pre-schedulingbooking features, real-time tracking, multiple pick-up & drop-off locations, support

multiple payment options, in-app chat or call option as part of the customer supportservices,andevenSOSPanicButtontoearnusers’ trust.Given the high fixed costs, firms in this industry would benefit frominternaleconomiesofscale which allows the firms to spread their costs over a large output. This means that theexisting firms are able to charge their services at alowerprice, that candetertheentryofnewfirmssincetheyareunlikelyabletopricetheir servicesat alower price. Moreover, giventhat the dominant firms have been in the market for some time,contrivedbarrierssuchasbrandloyaltyhavebeenestablished,makingitdifficultforanewincumbentfirmtopenetrate.Assuch, thishighbarrierstoentryhasresultedinasmallnumberoffirmsinmostcountries.For instance, in Singapore the main ride-hailing firms are Grab, GoJek, Ryde, ComfortDelgroetc. This suggest that eachfirmscanhaveasubstantial marketpresencewithstrongmarketpower. With only a fewsubstitutes in the market,demandforride-hailingserviceswouldlikelybepriceinelastic.Requirement 2: Explaining how economic theory suggests how price and output will bedeterminedintheride-hailingmarket● Explainho