Sample Economics Assignment PDF

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer 1....................................................................................................................................2
Introduction............................................................................................................................2
Australia Post: Company Overview.......................................................................................2
Natural Monopoly: Meaning and Implications......................................................................3
Benefits of natural monopoly.............................................................................................4
Problems of natural monopoly...........................................................................................5
Scenario of Australia Post......................................................................................................5
Conclusion..............................................................................................................................6
References..............................................................................................................................8
Answer 2..................................................................................................................................10
Introduction..........................................................................................................................10
Essence of the story..............................................................................................................10
Economic Assessment and Interpretation............................................................................11
Problems with price war...................................................................................................14
Conclusion............................................................................................................................15
References............................................................................................................................17

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Answer 1
Introduction
The term “market” holds immense significance in the theoretical and the conceptual
framework of economics. Market, in economics, is defined as the place of interaction of the
demand and the supply side forces, that is, the buyers and the sellers respectively of any
commodity or service, where by mutual interaction the price and the quantity demanded or
supplied of the particular commodity or service is decided. Thus, market is an elementary and
significant part of an economy (Davis 2013).
Market, in turn, also has significant importance and influence on the global
commercial scenario. This is because, the profitability, prospects as well as the short term and
long-term performance and sustainability of any business depend on the type of market in
which the business is operating, which in turn gives a view about the number of buyers and
sellers in the market, the distribution of market power among the demand and the supply side
players, the nature of demand and supply and also the entry and exit barrier present in the
market (Gandolfo 2013).
Keeping this into consideration, the concerned assignment tries to emphasize on the
type of market in which the postal company of one of the most significant and dominant
economies of the world, Australia, named the Australia Post operates. It also tries to analyse
the debates existing regarding the operational framework of the concerned company and its
performances and efficiencies in the market in which it operates.
Australia Post: Company Overview
The Australia Post, being the name of the Postal Corporation of the country is a
government owned company which is bestowed with the responsibility of offering postal
services for the residents of the country, the services being both domestic as well as

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international (Pc.gov.au 2018). With the head-office situated in Melbourne, the public owned
company operates thousands of retail outlets in the country. The company has nearly 15,357
street posting boxes, over 4000 retail outlets and employs more than 30,000 people
(Austlii.edu.au 2018). With a revenue generation of nearly 6.8 billion AUD and an operating
income of 400 million AUD in 2017, the company is often considered as one of the
significant monopolies existing in the country.
The company, being public enterprise, has enjoyed significant monopolistic traits over
the years and in spite of a lot of reforms and debates, still in the contemporary period enjoys
monopoly over small items, less than 250 grams and although the parcel delivery system in
the country is not a monopoly of Australia Post, it still enjoys a considerable market share
and market power owing to its natural monopolistic trends and economic efficiencies due to
large scale operations in this aspect (SmartCompany 2018).
There have been considerable debates regarding the effects of this natural
monopolistic trends of Australia Post over the overall population of the country and its
economy, to examine and analyse which it is of utmost importance to understand the
theoretical notion of natural monopoly and the assertions regarding the benefit and problems
of existence of the same.
Natural Monopoly: Meaning and Implications
In economics, a monopoly is a type of a market situation where there are many buyers
and only one seller, which in turn gives the seller full market power and price and quantity
deciding capacities, due to the absence of any competition in the market and due to the
absence of any close substitute of the product or service which the seller offers to the buyers
(Becker 2017).

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In this context, a monopoly is said to be natural monopoly when it does not arise out
of consolidation, collusion or takeovers but arise due to the advantage of the concerned
company in the aspects of high barriers of entry of other potential competitors in the industry.
Natural monopolies generally occur in those industries or businesses where the initial fixed
cost and start up costs are extremely high or where one company enjoys cost advantages in
aspects of collection of raw materials, technologies or other resources of production over the
others.
Benefits of natural monopoly
Often in some industries, especially in public good or essential good and service
industries natural monopoly is supported as in the presence of one big seller serving a large
population, with the expanse of operation, the cost of production goes on decreasing which
increases both the welfare of the consumers as well as the profitability of the natural
monopolist as shown below:

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Figure 1: Decreasing cost with increase in production of natural monopolist
(Source: As created by the author)
Problems of natural monopoly
This type of market structure often enables the monopolists too exploit their
advantages in order to indulge in anti-competitive activities and own-welfare maximizing
ones which may be harmful for the population as a whole (Baldwin, Cave and Lodge 2012).
Scenario of Australia Post
In spite of the presence of natural monopoly in Australia Post over the years and in
spite of the argument of cheap prices of mails and parcels being one of the primary arguments
supporting the presence of natural monopoly in this government owned company, the
company has been showing negative traits in its performances and efficiencies in the last few
years as can be seen from the following figure:
Figure 2: Fall in profit of Australia Post
(Source: Postalnews.com 2018)

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The profit of the company has fallen significantly over the last few years, much of
which can be attributed to fall in the volume of letters as many people have shifted to online
mails and the company did not considerably succeed in updating its technologies enough.
Figure 3: Change in the volume of letters
(Source: Postalnews.com 2018)
The cost efficiency of the company is also seen to be withering as the company has
been constantly increasing its charges in every respect. The base rates of the company have
increased from 50 cents in 2003 to $1 in 2016. The company can also be seen to be exploiting
its Post Office Box monopoly by not allowing other private business to deliver parcels to
these boxes, thereby implementing unfair means to survive in the country as a monopolist
(Theconversation.com 2018). The salary structure of the company is also highly skewed with
the CEO and higher officials drawing huge salaries and to compensate the losses the
company has announced to fire thousands of its lower level employees which has also drawn
severe criticisms.

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Conclusion
From the above discussion, it can thus be asserted that the Australia Post, in spite of
being a natural monopoly and a government owned company, has in the recent years failed to
retain its monopolistic cost efficiencies and the goals for which the monopoly was created.
The decreasing cost efficiencies, failure to upgrade, endogenous vested interests, anti-
competitive practices and high employee dismissal have led to the creation of dissatisfaction
among the general population of the country and in this case, the entry of competitors can be
a more cost effective and market efficient solution for the concerned economy.

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References
Austlii.edu.au (2018). What price the Australia Post monopoly?. [online]
Www5.austlii.edu.au. Available at:
http://www5.austlii.edu.au/au/journals/inCiteALIA/1993/4.pdf [Accessed 18 May 2018].
Baldwin, R., Cave, M. and Lodge, M., 2012. Understanding regulation: theory, strategy, and
practice. Oxford University Press on Demand.
Becker, G.S., 2017. Economic theory. Routledge.
Davis, J.B., 2013. The theory of the individual in economics: Identity and value. Routledge.
Gandolfo, G., 2013. International Economics II: International Monetary Theory and Open-
Economy Macroeconomics. Springer Science & Business Media.
Pc.gov.au (2018). Industry Commission Submission to the National Competition Council
Review of the Australian Postal Corporation Act 1989. [online] Pc.gov.au. Available at:
http://www.pc.gov.au/research/supporting/postal/postal.pdf [Accessed 18 May 2018].
Postalnews.com (2018). Aus.PostNe.ws. [online] postalnews.com. Available at:
http://postalnews.com/blog/category/worldpostnews/asia-postne-ws/australia-post/ [Accessed
18 May 2018].
SmartCompany (2018). Australia Post is hurting small businesses with PO Box monopoly,
says delivery company Sendle - SmartCompany. [online] SmartCompany. Available at:

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https://www.smartcompany.com.au/growth/australia-post-hurting-small-businesses-with-po-
box-monopoly-says-delivery-company-sendle/ [Accessed 18 May 2018].
Theconversation.com (2018). Australia needs a postal service but does the government need
to own it?. [online] The Conversation. Available at: https://theconversation.com/australia-
needs-a-postal-service-but-does-the-government-need-to-own-it-43995 [Accessed 18 May
2018].

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Answer 2
Introduction
The definition of market, in terms of economics, as discussed in the previous answer
is a wide and broad one and in economic framework there exist different types of market
structures, each with their own traits and characteristics. In the global economic framework,
there are in general several types of dominant market structures, the primary ones being
perfectly competitive market, monopoly market, oligopoly market, monopolistic competition
and monopsony market, each varying in terms of the number of demand side and supply side
players, the nature of goods and services sold in the market, the market power and decision-
making abilities enjoyed by the sellers and the buyers and also the barriers which exist in the
market (Baumol and Blinder 2015).
Keeping this into consideration, the concerned assignment takes into account the
economy of Australia, one of the largest mixed economies in the global framework with
highly developed industrial sector and the presence of diverse market structures in different
industries in the country, the traits of which show considerable relevance with the market
theories in economics.
The concerned assignment, refers to the article named, 'Down Down' and 'Cheap
Cheap' are gone gone: Coles, Woolworths moving away from 'supermarket price wars',
which highlights the dynamics in the supermarket industry of the country and the assignment
tries to discuss and analyse whether the assertions and arguments put forward by the
concerned article are correct and whether they hold relevance (Abc.net.au 2018).

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Essence of the story
The article discusses about the primary players in the supermarket industry of
Australia, namely the Coles and the Woolworths and highlights the acute price war and
competitions which have existed between these two giants over the last few years. The article
highlights that Coles started this price war in 2011, by reducing the price of its own branded
milk, to which Woolworths retaliated and this continued over the years.
As per the evidences provided the article the price war has been detrimental to these
food and liquor giants in the long term. To prove the same the article puts forward the
considerable decrease in the half yearly profit of Coles by 14.1% and also asserts that the
profits of the Woolworths has been going up after the same has given up on the price
competition strategy (Shanahan, Round and Round 2013). The concerned article ends up with
the recommendation of non-price competition strategies like advertisement, which have been
taken up by Coles in the recent times and highlighting the benefits of the same for the profits
and revenue generation of the companies in the long run.
Economic Assessment and Interpretation
The supermarket industry in the country can be said to be an oligopolistic one as in
spite of the presence of a number of small and medium supply side players, the industry is
dominated by a few major giants, the market share of which can be seen as follows:

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Figure 4: Market share of the Australian supermarkets (By total expenditures) in 2017
(Source: Roymorgan.com, 2018)
As is evident from the above figure, the Coles and the Woolworths are the two biggest
players in the market, each enjoying mote than 30% share in the country in the contemporary
period. To maintain their market dominance and to win over each other, these two giants
have been engaging in acute price competitions over the years, exploiting their economies of
scale and cost efficiency.
However, engaging in the price war has not proved to be an efficient for both of the
supermarket giants, as can be seen from the following figure:

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Figure 5: Market share dynamics over the years
(Source: Tamim.com.au 2018)
As can be seen from the above figure, the growth of both Coles and Woolworths has
stagnated considerably and taking advantage of their price competition, the other budget
supermarkets like Aldi have been growing significantly in the recent period, thereby posing
as serious competitive threats for the companies in the recent periods.
Figure 6: Decrease in comparable food and liquor sales
(Source: Afr.com 2018)

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The sales of both Coles as well as Woolworths are also found to be experiencing
considerable problems and downturns in the last few years.
Figure 7: Revenue growths of the supermarkets
(Source: Rogermontgomery.com 2018)
In terms of revenue growth also these two markets can be seen to be losing out to Aldi and
facing extreme stagnation in the recent years, which can be attributed to the price war
between them.
Problems with price war
Price competition is one of the most common traits of the oligopoly market, which
however gives rise to a kinked demand curve, as shown below:

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Figure 8: Kinked demand curve
(Source: As created by the author)
This in turn signifies that in such a situation, a cut in the price by one seller is
followed by a cut in the price by other sellers in the market but the opposite does not occur.
In this process, each of the competing companies lose a significant amount of profit, which
can be seen to e happening in case of Coles as per the assertions of the article (Sushko 2013).
This in turn indicates towards the fact that the assertions put forward by the concerned article
are true to a considerable extent and non-price competitive policies as a way out, as suggested
by the article are also relevant to the situation.
Conclusion
From the above discussion, it can be asserted that the arguments put forward by the
article taken into consideration, regarding the price competition between Coles and
Woolworths and the negative implications of the same on the profit and sustainability of the
companies in the country in the long run are considerably correct and relevant as can be
supported by both theoretical assertions as well as empirical evidences in this context. This in

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turn makes the recommendation of the article, regarding the benefit of the non-price
competition in the industry relevant and the concerned companies are also seen to be shifting
from the price war to this kind of strategies in the recent periods.

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References
Abc.net.au (2018). Why Coles, Woolworths are moving away from the 'supermarket price
wars'. [online] ABC News. Available at: http://www.abc.net.au/news/2018-03-07/why-
supermarkets-are-moving-away-from-price/9524110 [Accessed 18 May 2018].
Afr.com (2018). Wesfarmers under the pump as Coles loses momentum. [online] Financial
Review. Available at: http://www.afr.com/business/retail/wesfarmers-under-the-pump-as-
coles-loses-momentum-20161028-gsdc6b [Accessed 18 May 2018].
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Cengage
Learning.
Rogermontgomery.com (2018). Is Woolies trading at a discount?. [online] ROGER
MONTGOMERY. Available at: https://rogermontgomery.com/is-woolies-trading-at-a-
discount/ [Accessed 18 May 2018].
Roymorgan.com (2018). Aldi hits new high in supermarket wars. [online] Roy Morgan.
Available at: http://www.roymorgan.com/findings/7234-woolworths-coles-aldi-iga-
supermarket-market-shares-australia-march-2017-201705171406 [Accessed 18 May 2018].
Shanahan, M.P., Round, D.K. and Round, K.A., 2013. cartel Resilience in Australian markets
1901–1967. Revue économique, 64(6), pp.1011-1042.
Sushko, I. ed., 2013. Oligopoly dynamics: Models and tools. Springer Science & Business
Media.
Tamim.com.au (2018). Australian Supermarkets: The death of a duopoly. [online] Tamim
Asset Management. Available at: https://www.tamim.com.au/20170504-8203australian-
supermarkets-ndash-the-death-of-a-duopoly.html [Accessed 18 May 2018].