Vietnamese Dairy Industry Analysis

This assignment delves into the competitive landscape of Vietnam's dairy industry. Students will analyze market structures, including monopoly, monopolistic competition, oligopoly, and market failure. They'll examine Vinamilk's dominant position, exploring its strategies and the factors contributing to its success. The assignment also encourages critical thinking about potential challenges facing the Vietnamese dairy market.

RMIT International University Vietnam
Bachelor of Business Program
Assignment Cover Page
Subject Code: ECON 1194
Subject Name: Prices and Markets
Location & Campus (SGS or HN): RMIT Vietnam SGS
Title of Assignment: Assignment 3
Student Name: Dang Hong Thu Thao
Student NumberL S3778772
Lecturer: Tam Le
Assignment due date: September 8th, 2019
Number of pages including this
one: 14
Word Count: 2200 (exclusive of the reference list)
Question 1:
According to RMIT materials, a monopoly is considered as the only firm that is granted
permission from the governments to provide products or services for people and hence, their
products or services become unique. Moreover, a firm can be seen as a monopoly when other
competitors are incapable of entering the market due to some restriction and these restriction
are known as “barriers to entry" to access the market and compete with an existing firm (T
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Beveridge, 2011). In addition, there is one statement that Vinamilk is one of the monopolies
in the milk market in Vietnam, and 3 main points below will determine whether this
statement is right or wrong.
Vinamilk was founded in 1976 and it is a Vietnam Dairy Products Joint Stock Company.
Nowadays, Vinamilk is the leader in the nutrition group in Vietnam achieving more than 1
billion USD in the revenue (Vinamilk 2016).
1. Concentration:
Despite the fact that Vinamilk is the leader in the milk market share in Vietnam, it still
has to compete with many competitors in the same field such as TH True Milk, NutiFood,
Friesland Campina, etc. Despite the fact that Vinamilk can be considered as the top milk
brand in Vietnam, it only holds a 55% market share in Vietnam (Vietnambiz 2019). In
particular, for liquid milk, Vinamilk remains to be a leader with 54,5% (Quynh Nhu
2019), but Vinamilk still has to encounter some well - known brands TH Milk, Nestle,
IDP and Moc Chau (Anh, H. 2019). A monopolist occupies 80% of market share,
meanwhile Vinamilk just holds 55% market share. For this reason, Vinamilk can’t be a
monopoly in diary market.
Moreover, to evaluate the position of Vinamilk being seen as “monopolist" in the diary
market, product differentiation such as packaging design and branding activities should
be considered.
2. Product differentiation:
 Packaging design:
It is clear that packaging design plays an important role in recognizing brands and
attracting customers to pay for products (Keller 2009). Therefore, each milk firm has own
specific design and Vinamilk has also built its brand image by utilizing the image of
healthy cows are grazing in the green field that no other milk brands have. Besides, 2
lines above and below of the logo represent 2 drops of milk. Hence, the integration
between unique logos and interesting illustrations as well as an informative manifestation
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brings friendliness and closeness to both children and adults that help Vinamilk prove its
position in the market (IBN 2017).
Figure 1: Adapted from Hoa Nhap.
 Marketing strategies and branding activities:
According to the Vietnam Investment Review, Vinamilk is ranked in the 1st place at the
top of domestic milk companies in image promotion cost. Especially, Vinamilk spent
VND 4.557 trillion (equivalent to 82%) for advertising, promotion activities and market
survey (Vui, 2019). Vinamilk is considered to be very successful in terms of digital
marketing, by creating videos following with new trends and teaching how to cook with
Vinamilk products to easily approach to Vietnamese mothers and some series for children
Vinamilk succeeds not only in marketing field but also in branding activities, specially
are community activities. In particular, Vinamilk has been a pioneer in implementing
program called “Milk School" since 2007. Furthermore, Vinamilk is also renowned for “1
million trees fund for Vietnam" that has brought 680.000 diversified trees for 22
Vietnam's provinces (Vy, 2019). Hence, in marketing plans as well as branding activities
perspective, Vinamilk has defeated the rivals in the same industry.
3. Barriers to entry:
Furthermore, to assess how far a business can be seen as a monopolist, emphasizing on
the level of “barriers to entry” is indispensable. And those barriers consist of the
government regulation, start-up costs, the economies of scales and technological payment
(Aeron Hill 2018).
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Apart from the quality of milk, nowadays, the diary market requires firms to have a
potential finance (Doanh Nhan 2017). Due to the fact that diary products are nutritional
products in which its components are complicated, requiring high - qualified
technologies. Additionally, branding activities also plays an important role and it
demands firms to have financial resources (BrandsVietnam, 2018). Therefore, capital
investment is always seen as barriers for new businesses to enter diary market. On the
other hand, on August 12th 2010, the Ministry of Finance issued Circula 122/2010/TC -
BTC on registration and price regulation which means that the retailers, producers or
distributors have to register the price when the products are first released in the market or
when the price changes. However, these registration costs that both new firms and
existing firms have to bare are quite high.
For the economies of scales’ side, because of the large amount of input production of
Vinamilk such as the purchase of large quantities of milk from farmers has shown that the
more proactive it is to import raw materials, the greater the Vinamilk's products and it
leads to an increase in the total revenue of Vinamilk (Thi, 2018). Moreover, because
Vinamilk has large production scale, so it has a large amount of labour and they are
divided into different departments, they have different tasks to specialize, hence this
labour specialization leads to the labour productivity and effective contributions for
Vinamilk based on the annual report in 2018 of Vinamilk.
On the other hand, for the technology advance, Vinamilk also invests the most modern
technologies to increase manufacturing capacity. By adopting this technology, it increases
the capacity from 400 to 800 million litre per year. In addition, 2 more machines
producing yogurt which are considered the most state-of-the-art and largest capacity in
the world produce 80,000 bottles for 1 hour per machine (Vinamilk 2018). Therefore, it
can be concluded that these machines not only help Vinamilk less relies on the labour but
also enhance the productivity of their production. In conclusion, the barriers for new
firms to enter the milk market is high.
 To conclude, despite the fact that Vinamilk is not a monopoly, it still has high degree
of product differentiation and the barriers to entry is also high. Therefore, the position that
seen as “monopolist" in the diary market of Vinamilk is not low.
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Question 2:
1. As mentioned in the course notes for ECON 1194 Prices and Markets (‘Monopoly', n.d.),
monopolies are considered as “price - makers" as they are the only producers in specific
industries, they have a market power to alter the price. Therefore, the demand curve of a
monopoly is also the demand of the market. Hence, the demand curve of a monopolist is a
downward - sloping curve. Nevertheless, the market demand curve limits the ability of a
monopoly to profit from its market power and so, monopoly firms cannot sell a large
quantity at a high price.
Figure 2: Adapted from ThoughtCo. n.d.
Unlike many firms in perfect competition, they can sell as much as they want because
there is no price effect. In contrast, for one unit that a monopoly increases, the price it charges
for every unit must be reduced, and this reduction in price diminishes the revenue on the sold
units. As a consequence, it leads to a monopoly behavior that Price is always higher than
Marginal Revenue.
Moreover, due to the fact that the demand curve is related to the willingness of customers'
payment for the products sold, hence, it can help monopolies to find the profit-maximizing
price for its goods. And the point is considered as the optimal output is where marginal
revenue equals marginal cost, from that point, the demand curve will assist a monopolist in
finding the optimal price (Gans, King & Mankiw 2014).
In conclusion, because Price is higher than marginal revenue and marginal revenue equals
marginal cost, for these reasons, monopolists have the market power to charge a higher price
than their marginal cost. However, a monopoly cannot charge at the high randomly price as it
wants, the price it charges must follow the market demand curve.
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2. Price discrimination:
 Price discrimination definition:
Price discrimination is the business practice in which different prices are charged to different
customers and not depended upon the differences in production costs. And the aim of price
discrimination is to grasp the consumer surplus by transmitting it from customers to the
producers.
 The reason why some monopolies can practice price discrimination is because:
Firstly, monopolies are the sole producers in some industries where there are no other
existing competitors, so monopolies have the market power.
Secondly, as the monopolist dominates the majority of the market share, it also means that it
occupies different groups of customers in the market. However, different groups of
consumers have different willingness to pay due to the difference in their wage levels,
budgets. For this reason, monopolies are able to separate consumers.
Lastly, in reality, consumers are not often granted permission to resell. Moreover, consumers
sometimes cannot succeed in reselling products at a higher price. For example, the show
ticket in the afternoon is not as good as the one in the evening (Das 2007). Therefore, in some
cases, some monopolies can prevent arbitrage.
3. 2 cases:
It can be seen from the first case that there is a separation in consumers, especially are
students, children, and seniors. These customers only pay for movie tickets at a lower price
compared to those at a certain age although there is no change in the value of tickets. For this
reason, there are different prices for different groups of customers without any changes in
production costs (following the definition of price discrimination). Besides, the objective of
this practice is to create an incentive for those having limited budget groups to go to the
cinema more frequently. Hence, price discrimination is constituted in this scenario.
For the remaining case, despite the fact that there is a separation in customers (home visits
and clinic) and the difference in price for separated ones, especially home visits are charged
at a higher price. However, this difference is derived from the costs of production. Therefore,
price discrimination is not constituted in case 2 as it goes against the price discrimination
practice.
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Question 3:
1. Non-price competition is the competition in which price is not considered as a factor for
many firms in monopolistic competition to compete, instead, they mainly compete on
some non-price factors such as quality of goods, promotions, marketing strategies,
location, and packaging.
Although both perfect and monopolistic competitions have some similarities such as the
barriers to entry for firms are low and there are numerous buyers and sellers in the
market, it still has some differences such as the market power and products'
characteristics of each kind of competition. To be more detailed, goods in the perfect
competition are identical and so, the greatest concern of customers about products is its
prices as there is no other basis for them to choose. Meanwhile, in the monopolistic
competition, there are differentiated products and the inherent in product differentiation
(such as brand names, location, or quality) provides customers with not only a wide range
of selection that is consistent with customers’ needs but also better products and it also
assists firms in avoiding a price war. Hence, firms in this market mainly compete with
each other by non-price factors. For this reason, non-price competition likely happens in
monopolistic competition but not happens in the perfect competition.
2. It can be concluded from the case that although the costs of production of those
companies are the same, the products' quality of each firm is different. And the goods of
the former company tend to have a higher quality compared to the latter company because
the latter company produced a less reliable watch while a very trustworthy watch belongs
to the former company. Furthermore, based on the definition of non-price competition,
firms in this competition mainly compete on some non-price factors and importantly, the
quality is considered as one of the non-price factors. For this reason, a second company
cannot compete in this competition due to its quality disadvantage and hence, the first
company is more likely to participate in non-price competition.
However, non-price competition occurs in the monopolistic competition as mentioned
above and hence, the first company is considered as one of the firms in a monopolistically
competitive market.
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Figure 2: Adapted from LinkedIn
As a matter of fact, any firms in any competition all want to generate a profit. However, the
economic profit of firms in the monopolistic competition is driven to zero in the long run due
to the low level of barriers to entry a market. In particular, when the economic profit is
positive, new firms will enter and it makes the firms' demand curve shift to the left. Or when
firms are facing losses, old firms will exit and it makes the firms' demand curve shift to the
right. Therefore, due to these changes in demand, a firm in monopolistic competition
eventually finds the long-run equilibrium in which price equals the average total cost and
hence, the firm receives a zero economic profit. As a consequence, in the long run, a
company inventing a really reliable watch will face zero economic profit.
Question 4:
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1. Maximin strategy is a strategy that firms seek for a decision bringing the smallest losses
for these firms, and based on the maximin strategy to conclude the options that each firm
chooses when they independently make their decisions:
If Big Brew chooses “High Price", the minimum payoff that Big Brew will receive is $3
million. In addition, if Big Brew chooses “Low Price", the minimum payoff it will receive
is $1 million. Therefore, the maximin strategy for Big Brew to choose would be “High
Price"
For Little Kona, if it chooses to enter the market, it will face losses of $1 million.
Conversely, if it does not enter the market, it will face zero economic profit. Hence, the
maximin strategy for Little Kona to choose would be “Don't enter".
2. Nash equilibrium is a situation where there is an interaction of the economic actors with
one another, and each opts for their best strategy relied upon the chosen strategy of others
(Gans, King & Mankiw 2014). And by applying this situation into this case, it can be
found that there are 2 nash equilibriums:
Firstly, because “High Price" is elected by Big Brew based on the above answer and so,
the optimal choice Little Kona will choose is making $2 million (as $2 million is better
than zero). Therefore, the first nash equilibrium is NE = ($2 million, $3 million).
On the other hand, as Little Kona selects “Don’t enter" based on the above maximin
strategy and so, the best strategy Big Brew adopts is making $7 million (as $7 million is
better than $2 million). Therefore, the remaining nash equilibrium is NE = (zero, $7
million).
3. Collusion is an agreement of firms in the market about quantities and prices to produce
and charge. Therefore, it refers to the given case, due to the fact that the price
combination seen as better off for both firms is not existing and no firms are willing to
accept a collusion which is considered as a disadvantage for them. As a result, there is no
incentive for both firms to collude.
Question 5:
1. Externalities are the influence of the actions of one person on a bystander's wellbeing and
that influence is uncompensated. Moreover, externalities occur when a good's production
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or a good's consumption has positive or negative effects on third parties and these effects
do not include the price of the product. In addition, bystanders become better thanks to
positive externalities and in a reverse way, bystanders become worse due to negative
externalities.
2. For example, plant protection chemicals are considered one of the externalities and this is
a negative externality because its consumption by the farmers has negative impacts on
human wellbeing
Graph
The consumption of plant protection chemicals can cause soil pollution and health risk
which adversely affects the economic development and residents' health consuming
agricultural products, respectively. Because the external costs are related to such
consumption, the private value is higher than the social value. Therefore, the planner
would want to cut down on the amount of production and consumption to the optimal
output.
3. In order to ameliorate this problem, there should be government intervention. Particularly,
the government should impose tax incidence, especially is on the buyers. Although the
tax is imposed on the buyers, both buyers and sellers have to bear the burden of the tax.
Moreover, when the payment of buyers is higher and the price received by sellers is
lower, it leads to a decrease in the quantity produced.
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REFERENCE:
Vinamilk 2016, ‘Vinamilk Sustainable Development Report 2016’, viewed 24 August 2019,
Vinamilk, <https://www.vinamilk.com.vn/static/uploads/article/1492405308-
321debab5db21d4259d9560c5e4e271657c8c65c72f19e614605a3c64638a294..pdf>
Vinamilk 2018, ‘Vinamilk Annual Report 2018’, viewed 26 August 2019, Vinamilk,
<https://www.vinamilk.com.vn/static/uploads/bc_thuong_nien/1553157661-
ea4e37fe1db29419325178dd843588da6e8234bb730198a6aa961d741128712e.pdf>
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Khanh Vy 2018, ‘Vinamilk is an pioneer in community activities', Cong An Nhan Dan
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trong-cac-hoat-dong-vi-cong-dong-524143/>
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tuoi-ai-thach-thuc-nguoi-dan
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Science & Technology Development, vol. 19, no. 4,
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Market Failure', n.d., course notes for ECON 1194 Prices and Markets, RMIT University,
Vietnam, viewed 3 Sep 2019, Blackboard@RMIT.
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Vietnam, viewed 5 Sep 2019, Blackboard@RMIT.
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University, Vietnam, viewed 5 Sep 2019, Blackboard@RMIT.
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Gans, King & Mankiw 2014, Principles of Microeconomics, Cengage Learning Australia,
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Das 2007, Microeconomics For Business, SAGE India, viewed 4 September 2019, Ebooks
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