2022 SH2 H2 Econs Prelims P1 QP

ECONOMICS 9757/01Paper 1 22 August 20222 hour 15 minutes No Additional Materials are required. READ THESE INSTRUCTIONS FIRST Ananswer booklet will beprovidedwiththisquestionpaper. Youshouldfollowtheinstructionsonthefrontcover of the answer booklet. If you need additional answer paper ask the invigilator for a continuationbooklet. Answerallquestions. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of7printed pages and1blankpage. NATIONAL JUNIOR COLLEGE Economics Department © NJC 2022 9757/01/Aug/22

2 Answerallquestions. Question 1: A winner in the pandemic – Amazon Table 1: Retail revenue of the top ten largest Public Retailers (2010 and 2020) US Retailer Retail Revenue in 2010(in US$ billion) Retail Revenue in 2020(in US$ billion)Amazon 50 1,400Walmart 179 339The Home Depot 47 267Costco 24 134Lowe’s 29 102Source: visualcapitalist.com, accessed 29 June 2020 Extract 1: Market strategy of Amazon Amazon is interesting not just because of its competitive scope, but also because of its marketstrategy. Michael Porter of Harvard Business School suggested in 1985 that companies need tochoose not only whether to have either a broad market/ product focus or a narrowone, but alsoeither adifferentiationor cost leadershipstrategy. Other strategistswouldcontendthatyoucanmixthe two as a hybrid. Adifferentiationstrategyiswheretheproduct or serviceiseither perceivedtobe, or is,ofsuperiorcustomer valueandhasadefinitepricepremium.Acostleadershipstrategyiswherethepricemaybe similar or usually lower than the competition, but costs are certainly lower. InAmazon’scase,thecorestrategyisclearlymoreacostleadershiponewhencomparedwithbrickand mortar retailers. Amazon has massive warehousing facilitiesandprocessingcapability, whichgive it physical economies of scale. That in turn gives it cost advantages. But in its service, it isdifferentiated – so it is something of a hybrid. Amazonisultra-keenoncustomer feedback, andJeff Bezos, founder andchiefexecutiveofficerofAmazon.com, Inc. has spread customer focus as a mantra throughout the organisation. Suchservice differentiation does not just bringloyaltybut alsoencouragescustomerstobuymorefromAmazon. Thecompanyisventuringintosomeperhapsunexpectednewareas, for example, byexploitingitsdistinctive capability in handling large amounts of data and for newtypes of customer, sendingashiver down the spines of many large information technology (IT) companies. Source: accaglobal.com, accessed 14 July 2022 Extract 2: Amazon charged with abusing EU competition rules TheEuropeanCommissionhaschargedAmazonwithabusingitsdominant positioninonlineretailto gain an unfair advantage over competitors. It saidAmazonhaduseddataonthird-partysellersthat use its marketplace to boost salesof itsown-label goods. Third-partysellersareindependentsellerswhooffer avarietyof new, used, andrefurbisheditemsonAmazon’splatform. Thestepsto © NJC 2022 9757/01/Aug/22

3 place an order with a third-party seller are the same as placinganyother order onAmazon.com.You add items to your cart and complete your order through the Amazon checkout process. TheCommissionalsolaunchedafreshprobeintothepossiblepreferential treatment ofsellersthatusethe technology giant's logistics services. Amazonrejectedthecharges, sayingnofirm‘caredmore’ for small businesses.Itfacesapotentialfine as high as 10%of its global turnover if it isfoundguiltyof breachingcompetitionlaw–aboutUS$19 billion. In a statement, the European Union’s (EU) Competition Commissioner MargretheVestager said it was vital that platforms with ‘market power’ did not ‘distort competition’. ‘Dataontheactivityof third-partysellersshouldnot beusedtothebenefit of Amazonwhenitactsas a competitor to these sellers,’ she added. ‘With e-commerce booming, andAmazonbeingtheleadinge-commerceplatform, afair andundistortedaccesstoconsumersonlineisimportantforallsellers.’ In a statement Amazon insisted that – far from being anti-competitive – its own private-labelproducts were good for customers and offered more choice. ‘Amazonrepresentslessthan1%oftheglobal retail market, andtherearelarger retailersineverycountryinwhichweoperate,’ itsaid.‘Nocompanycaresmoreabout small businessesor hasdonemoretosupport themover thepasttwo decades than Amazon.’ It also pointed out that there are more than 150,000 Europeanbusinesses selling through its online marketplace. The charges come as the coronavirus crisis has driven huge sales for the retailer, as peopleincreasingly turn to online shopping. In August, boss Jeff Bezos became the richest man in theworld with a fortune of more than US$200 billion after the firm'ssharepricerocketedintheearlymonths of the pandemic. Source: bbc.com, accessed 19 November 2020 Extract 3: China’s online shopping addiction is killing its green packaging drive The e-commerce industry is trying to reduce plastic waste fromthe millions of packages it shipsevery day. If you worry about all thewastegeneratedbytheannual rushof holidayshoppingandgift giving, it isnothingcomparedtothemountainsofdiscardedpackagingthatcomesfromasingleevent in China. On 11 November each year, the world’s biggest consumer market goes into overdrive ase-commerce giants like Alibaba Group Holdings Ltd. and JD.com Inc. lure shoppers with hugebargainsduringtheSingles’ Daybonanza. Alibabareportedalmost 500billionyuan(US$76billion)of sales this year, nearly four timesUnitedStates(US) BlackFridayandCyber Mondayspendingcombined. Greenpeace, an independent global campaigningnetworkthat actstochangeattitudesand behaviour to protect and conserve the environment, estimates that Singles’ Day generated52,400 metric tons of carbon dioxide (CO2 ) frommanufacturing, packaging and shippingin2017.The national railway has to employ hundreds of high-speed trains to help with deliveries every year. As President Xi Jinping pushes for stronger environmental protection and consumers growmoreeco-conscious, the nation’s e-commercegiantsareunder pressuretofindgreener waystohandletheannual extravaganza, startingwithplastic. China’ssoaringuseof thematerial hasbecomeoneof the world’s most pressing environmental issues but switching to other materials is costly forsmaller businessesandthegovernment hasstruggledtoimplement aplantophaseoutsingle-useplastics. © NJC 2022 9757/01/Aug/22 [Turn over

4 E-commerce companies are trying to stemthe tide. For Singles’ Daythisyear, Alibaba’slogisticsarmCainiao designed recyclable corrugated cardboard boxes that do not have to besealedwithplastic tape. The company offered the packaging to more than 500 sellers on Tmall, includingbrandslikeNestleSAandProcter &GambleCo.Theso-calledzipperboxescosttwiceasmuchastheir usual packaging. Cainiaosaysit used190,000plastic-freeboxesand3millionbiodegradablebagstopackageSingles’ Dayordersthisyear.Whilethatisastepforward,itisjustafractionofthetotal increase in packaging this year. Cainiao emblazons the boxes with dolphin images to ‘raiseawareness of how plastic pollutes the oceans’. Still, without government regulation, companies are left to decide if they want to use moresustainable packaging. Online shopping has become such a key driver of China’s domesticeconomy, especiallyduringthepandemic, that authoritieshavebeenreluctanttoinstituterulesthatcould hurt the industry. The environment ministry, which drives climate policies, doesn’t have thepower to mandate greener packaging. Source: Bloomberg News, 21 December 2020 (a) Compare the relative change intheretail revenuefor Amazon, Walmart andHomeDepot in2010and 2020. [2] (b) Usingadiagramandarelevantelasticityconcept,explainhowtheAmazon’sdifferentiationstrategy(Extract 1) may have contributed to the change in its revenue. [5] (c) With reference to Extract 1, explain a source of cost advantage experienced by Amazon.[2] (d) Identify and explain two possible barr