Economics group 4 topic and outlines

TOPIC : Price discrimination in Technology Transportation Service: Grab Vs GoViet in Vietnam A.. Monopoly market Overall market in the past: talking about how Grab has their own power to

TOPIC : Price discrimination in Technology Transportation Service: Grab Vs GoViet in Vietnam

A INTRODUCTION

B LITERATURE REVIEW

C CRITICAL ANALYSIS AND PROBLEM SOLVING

1 Monopoly market

Overall market in the past: talking about how Grab has their own power to control the price in the market in the past e.g pushing prices up in rain and rush-hours when consumer demand is less elastic => monopolistic privilege

2 New entrant to the market

Go-Viet is new in the market – then they have relatively few barriers to entry (low overheads, service provider/app not the transportation company i.e don’t need to provide employee benefits, same strategies as Uber’s) Although Grab has economy of scale, it’s more efficient (lower fixed costs and more driver availability) for Grab to maximise their customer services

3 Substitution effect

Go-Viet’s price strategy when entering the market: Go-Viet lower their price to attract Grab’s customers (these two service providers are substitutes) This causes the Grab demand curve shift leftward and pushes the price down, the quantity of grab customers also falls

4 First mover advantage

Therefore, Grab responds with a new strategy to lower their price, to match’s Go-Viet The difficulty with this is the asymmetric information - Grab might lower its price in anticipation of a price-cut/ promotion offer by Go-Viet and vice versa

5 Social surplus and Monopolistic Competition

As Grab and Go-Viet compete, this causes a race to the bottom and erodes their economic profit and maximizing consumer welfare If this market is competitive, MR=MC

D RECOMMENDATION

Future direction

Grab and GoViet cooperate (form a cartel) in the market to fix the price and

maximise their profit (producer surplus) i.e duopoly market

OR

Grab buy the fledgling competitor and absorb Go-Viet, as they did absorb Uber in Vietnam market or the case study of Instagram being absorbed by Facebook -> monopoly market

Recommendation:

It’s important to consider the negative social effects of a monopoly or duopoly – they have the pricing power and social welfare (surplus) comes second to profit (producer surplus)

We therefore recommend that government interfere in the market (because of the distortion) by imposing a tax Currently, Grab and Go-Viet are treated as a tech company …the alternative is that govt policy should classify grab and go-Viet as transportation (as with Uber in Europe) -> make higher tax This should be used to further consumer welfare in the country

Furthermore, by classifying the company as transport -> drivers recognized and protected employees

However, this tax would -> increase in AVC and if this falls below MR the firms would

be pushed out of the market, because their economic profit is diminished, and they

no longer have an incentive to participate Therefore, a delicate balance needs to be maintained

E BIBLIOGRAPHY

References used in the assignment