ACJC_H2_ECONS_P2_essay_Q2_(supermarket)

ACJC 2018 PRELIMS ESSAYS_SUGGESTED ANSWERS (Q2 ) 1 2. According to Euromonitor International, Singapore's grocery retail market was worth S$4.3 billion in 2016, with the online grocery retail market valued at S$96 million. (a) Distinguish the characteristics of firms operating in oligopolistic and monopolistically- competitive markets. [10] (b) Discuss how increased competition in online grocery retailing would affect the survival of traditional supermarket chains like NTUC FairPrice and Cold Storage. [15] Suggested Approach for Q2(a) • Identify the characteristics that define a market structure • For each characteristic, explain how oligopolistic firms differ from monopolistically-competitive firms • Illustrate with relevant examples how the two market structures differ in the characteristics INTRODUCTION The different types of market structure can be di stinguished by their characteristics. The basic characteristics that are useful to distinguish the different market structures are number and size of firms, nature of product, and barriers to entry. BODY 1. Barriers to entry • Barriers to entry is a characteristic to dist inguish between firms in the oligopolistic and monopolistically-competitive markets. While si gnificant barriers to entry are present in oligopolistic markets, there is relative freedom of entry into and exit out of monopolistically- competitive markets. • In the supermarket industry, strong barriers to entry exist in the form of substantial investments in basic infrastructure (e.g. stores , distribution centres and logistics networks), access to finance (e.g. to fund advertising and promotions), business management capabilities and retail expertise (e.g. managing a chain of stores, having the expertise to manage a diverse range of employees, being nimble with strategies to compete and to grow). High fixed costs involved in running a chain of stores (rentals, wages, utilities, etc.) are a major consideration for any potential entrant into the market. • On the contrary, bubble tea stores are almost anywhere and everywhere in Singapore because of the relative ease of entry. Apart from a sm all store space, the equipment, ingredients and expertise needed to run a bubble tea store are not too difficult to acquire. This is especially so in a franchising model whereby the franchiser licenses its know-how, procedures, intellectual property, use of its business model and brand, and the rights to sell its branded products and services to a franchisee. Many entrants into the bubble tea business are either franchisees or overseas ventures of big bubble tea brands from Taiwan. 2. Number and size of firms • Due to relatively strong barriers to entry, an oligopolistic market is dominated by a small number of large firms while a monopolistically-competitive market is characterised by a large number of small firms (but not as large a number as in perfect competition). • For example, traditional