Economics Assignment - Analysis of Coles and Woolworths Market Structure and Spain and India's Business Cycle

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
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1ECONOMICS ASSIGNMENT
Part A
Answer to Question 1
Both Coles and Woolworths operate in an oligopoly market structure. To be more
specific both the firms operate as a Bertrand Duopoly model. In this duopoly model both the
firms act as price competitors. Each of the firm tries to undercut price to capture a larger
share of the market. However, if the firms charge the same price then the market share would
be divided equally among the firms. In normal scenario, the firms keep on undercutting the
prices until there exists zero profit or prices equal to the marginal cost (Ahmed, Elsadany,
and Puu 2015). The market structure for Coles and Woolworths is similar. Both of them sell
goods that are differentiated to some extent. Further, there are also barriers to entry in this
supermarket industry. Both of the firms are trying to capture a larger portion of the market
share by cutting their prices. The graphical analysis is provided below for a Bertrand model.

2ECONOMICS ASSIGNMENT
Answer to Question 2
There exists a serious price war between Woolworths and Coles. Both of them are
trying to capture a large share of the market by reducing the price level. The markets for the
goods that are sold by these firms are elastic in nature. Therefore, the rate of reduction in the
price of the commodity is lower than the rate of increase of the quantity demanded. Thus,
both Coles and Woolworths are interested in capturing in a larger market share as, this would
increase the the total revenue of the firm. Therefore, if the firms are able to reduce the price
then they can capture a larger proportion of the market and thus increase their total revenue
and eventually increasing the profits.