RI Y5 Term 3 Remedial 4 (Student) 2023

Raffles Institution Term 3 Remedial 4 (Student) Kellogg’s recent acquisition of Pringles potato chips for US$2.7billion made it second only to PepsiCo Inc in the highly concentrated global snack food market, which consists of major players such as PepsiCo’s Frito-Lay, Kraft’s Nabisco and Diamond Foods. (a) Explain what is meant by productive efficiency and allocative efficiency. [10] Do only part (b) (b) Discuss whether having large companies like Kellogg and PepsiCo Inc in the snack food industry could be beneficial to society. [15] Suggested answer 1. Introduction ➢ Clarify that large firms such like Kellogg and Pepsico Inc in the snack food industry command a large proportion of the market share and have relatively high market power operating in an oligopolistic market structure → they have the ability to set price and are price setters → can bring about beneficial as well as undesirable impact to society. ➢ The creation of Kellogg/Pringles will make it the market leader. ➢ Identify the benchmarks used to assess desirability of such large companies o Society’s perspective: Efficiency (allocative, productive and dynamic) and Equity o Consumers’ perspective: Price/Qty, consumer choice, quality of product/service o Producers’ perspective: ability to raise TR to increase profits, cost savings 2. Body R1: Discuss whether large companies can be beneficial to society based on AE, PE → draw links to consumers R2: Discuss whether large companies can be beneficial to society based on DE → draw links to consumers R1: Discuss whether large companies can be beneficial to society based on AE, PE → draw links to consumers Thesis: Large companies such as Kellogg/Pringles and Pepsico Inc can be beneficial to society due to PE 1. Lower prices and higher output produced for consumers • Large firms can reap significant IEOS due to their large scale of production o Define IEOS – elaborate with examples • Use of theoretical framework (diagram) to illustrate & explain in relation to being closer to MES → more PE • Link benefits to consumers as result of cost savings from above Anti-thesis: Large companies such as Kellogg/Pringles and Pepsico Inc may not be beneficial to society 1. Consumers pay a higher price & greater inequity Explain how merger lead to ability to price way above MC & greater inequity 2. Explain allocative inefficiency to society using the diagram drawn for point 1. 3. Explain how large firms are X-inefficient due to complacency.

Evaluation: Possible Suggestions EV about prices: • Will the larger firm pass on cost savings or charge way higher prices? Explain your stand EV about AE & PE • Provide insight on how extent of allocative inefficiency may not be as large? • Provide insight on how they might be productive efficient or X-inefficient on the whole? R2: Discuss whether large companies can be beneficial to society based on DE → draw links to consumers Thesis: 1. Explain how large firms can achieve dynamic efficiency and link benefits to consumers Antithesis: 1. Explain how innovation may be limited Evaluation: o Provide insights on whether dynamic efficiency will be achieved on the whole in snack industry. Conclusion/Synthesis • Weigh the pros and cons → make a judgement as to whether large firms especially those in the snack food industry are beneficial to society (do the pros outweigh the cons? Do all consumers benefit or only some groups) • Use case evidence if any to back up those points. Have there be significant improvement in innovation, quality and lowering of price in the snack food industries? o Have there been increased in outreach such that healthier products are created? o Have prices increased or lowered with the formation of Kellogg/Pringles? • Role of the government