Managerial Economics: Competition in Markets - Sem I 2018/19 Analysis

This assignment solution focuses on managerial economics, specifically addressing the importance of competition in markets. It examines the StarKist price-fixing case, highlighting the unethical practices of tuna companies and their impact on consumers. The solution also explores the Australian Competitions and Consumer Commission's inquiry into foreign exchange, EU regulations on competition, and Google's alleged abuse of market dominance. Furthermore, it discusses the impact of Chinese government policies on the sales of Swiss luxury watches and the effects of increased oil production in Saudi Arabia and Russia on the world market. Finally, the assignment analyzes Apple's product life cycle strategy and pricing strategies. Desklib offers a wealth of similar assignments and study tools for students.

Managerial Economics

Table of Contents
Answer 1....................................................................................................................................3
Answer 2....................................................................................................................................4
Answer 3....................................................................................................................................4
Answer 4....................................................................................................................................5
Answer 5....................................................................................................................................5
Answer 6....................................................................................................................................6
Answer 7....................................................................................................................................6
Answer 8....................................................................................................................................7
References..................................................................................................................................8

Answer 1
StarKist case
 StarKist in close collaboration with other tuna companies tried to fix the prices of
canned tuna which is against the competition of market (Department of Justice, 2018).
The companies involved agreed to shrink the size of the tuna cans and raise the prices
of their cans to earn higher profits (Sixel, 2018). The companies that were found
guilty in this case were StarKist, Bumble Bee and Chicken of the Sea, which are one
of the dominating tuna companies of the United States.
 This unethical act by these companies was exposed by Sysco Corp., one of the biggest
food distributors, who exposed that despite of a drop in demand of canned tunas and
tunas in pouches, these three companies had fixed their prices in order to earn profits
(Sixel, 2018).
 Because of the merger and acquisition among these suppliers, majority of the market
was captured by these companies which impacted free competition environment.
Bumble Bee has nearly 27% market share, StarKist has nearly 35% market share and
Chicken of the Sea has nearly 20% of the market share, this means that more than
80% of the tuna market is captured by these suppliers because of the adoption of anti
competitive scheme (Hunton Retail Industry , 2016). At the same time, the demand
for canned tuna was going down, but still, it had no impact on the market share and
profitability of the company because of which the companies got exposed.
 As majority of the tuna market that is nearly 80% were captured by these three
suppliers, it can be seen that majority of the consumers purchased from these three
companies. Hence, because of raised and fixed prices by these suppliers, the
consumers had to pay them whatever was demanded and as a result, it directly
affected the pockets of the American consumers (Elias, 2018).

Answer 2
 Australian Competitions and Consumer Commission
 In June 2018, World Bank in its Remittance Prices Worldwide report highlighted that
the cost of sending money from Australia in relation to other G20 countries was
higher than its average and also it was higher than the global average cost. This cost
was nearly 11% higher than the average of G20, 13% higher than UK and 40% higher
than the US (ACCC, 2018). By looking at this the inquiry was commenced.
 Issues and enquiry to be conducted
o Pricing- ACCC will examine how suppliers set exchange rates and what fees
are charged by them
o Costs of supply- ACCC will examine the margins of the foreign exchange
suppliers and the stability of these margins over time.
o Nature and extent of competition- ACCC will examine completion in different
types of services according to requirements and will examine the extent of
barriers to entry
o How prices are communicated- ACCC will examine how the rates are
communicated to consumers and their ability to compare the different prices
(Meridian Lawyers , 2018).
Answer 3
 EU regulates competition
 EU has adopted to regulate the competition in order to ensure the competition is fair
and equal and for leaving room for innovation and small business to grow. The anti-

competitive tools used by EU include no fixing of prices; not using dominant position
in market; and mergers (EU, 2018).
Answer 4
 EU has said that Google is abusing the market by illegally giving advantage to its own
shopping Service. The comparisons of prices of products are displayed on Google’s
shopping service as a result of search for the products. Google’s shopping service is
not according to this algorithm and hence, is always displayed at the top. This is so
because Google controls the formatting of the search page. Because of this, the rival
competitors have experienced a significant less traffic and more traffic on Google
which is against the law (Glance, 2017).
 In response to this, Goggle said that they did this because their advertisers as well as
their customers both wanted this from us (Glance, 2017).
Answer 5
 EU’s allegations against Google- Google has broken antitrust laws by dominating in
three areas: (a)bundling its search engine as well as the apps like Chrome into the
operating system; (b) blocked phone makers to make devices related to forked
versions of Android; (c) made payments to manufacturers and mobile network
operators to bundle Google search apps. This move of Google will impact the fair and
equal conditions of competition and also denies rivals to innovate and compete
(Warren, 2018).
 In response to this, Google has appealed against the fine by EU on the grounds of
antitrust (Economic Times, 2018).

Answer 6
 The Chinese market is the third largest market in the world for the Swiss luxury
watches. In the first six months of the year 2018, Swiss watches collected revenue of
CHF 1.45 billion, which represents the high demand of these products in the market.
In 2018, the demand of the Swiss watches in Chinese market rose by 10% than the
previous year. The Swiss watch exports increased by 27% in 2017 in China (Delloite,
2017).
 According to the policies formed by Chinese Government to limit corruption, the
gifting of Swiss luxury watches was decreased. This has led to a decrease in the sales
of these watches by 10% after institutional reforms introduced in 2012. The Chinese
bought less luxury watches than usual which were previously used to grease the
wheels of politics (Delloite, 2017).
 For increasing the sales in the Chinese market, the luxury watch companies must try
to develop customized watches based on customers’ demands and add a trendy and
fashionable quotient to the watches as it is not advisable for luxury brands to reduce
their prices due to their high-end customer segment. Preparing customized watches
will also help them to maintain their profit margin by reducing its spare inventory.
Answer 7
The concerns related to the supply of oil decreased in the world market as a result of the
increased production of oil in Saudi Arabia and Russia. The production and prices in Libya
have also shown a sign of stability. The United States has taken a lead in the world oil market
by exporting the maximum amount of oil to its customer nations. The Iran sanctions have
eased the way for the USA. As a result of plunge in the Iran’s oil market due to the US
sanctions, Saudi Arabia is all set to ramp up its supplies. Saudi Arabia is the only producer in

the world with a significant amount of spare capacity, i.e., 2 million bpd which can be used to
compensate for the loss of the suppliers of Iran (Japan Times, 2018).
Answer 8
 The Apple has achieved success in the world market due to its product life cycle
strategy. The product lifecycle of the company includes four main stages –
introduction, growth, maturity and decline. The introduction phase is followed when a
new Apple product is introduced in the market. The Early adopters, owners of small
businesses and educators are its primary customers and the company deploys a print
and commercial campaign to create awareness about its products. The growth phase is
about increasing the market share of its products by pushing into new markets and
using aggressive marketing tactics. The third phase includes maturity phase in which
Apple differentiates it from other service providers by introducing innovation. The
final phase is decline which Apple uses as an opportunity to create new buyers by
innovation, functionality changes and redesigning (Więcek-Janka et al., 2017).
 Apple used the similar product life cycle for each of its products including iWatches,
Macs, iPhones and iPads. All its customers are mainly the early adopters who wait for
the new technology introduced by Apple. After getting good reviews from them, the
company introduces its products in other markets and increase the market share by
introducing innovate features (Więcek-Janka et al., 2017).
 Apple uses the skimming price strategy and the premium pricing strategy for all its
products including Macs, iPhones, iPads and iWatches. According to the premium
pricing strategy, the products of Apple are launched in the market with a premium
price which only its high-end customers can afford, irrespective of the fact that they
target just a small segment of the market. Skimming price strategy means that the

products are launched with high prices in the market and with the increasing time and
demand in the market, the prices of the products decrease (Nielson, 2014).
References
ACCC, 2018. ACCC commences inquiry into foreign exchange. [Online] Available at:
https://www.accc.gov.au/media-release/accc-commences-inquiry-into-foreign-exchange
[Accessed 08 December 2018].
Delloite, 2017. The Deloitte Swiss Watch Industry Study 2017. [Online] Delloite Available at:
https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/consumer-business/ch-en-
swiss-watch-industry-study-2017.pdf [Accessed 08 December 2018].
Department of Justice, 2018. StarKist Co. Agrees to Plead Guilty for Price Fixing. [Online]
Available at: https://www.justice.gov/opa/pr/starkist-co-agrees-plead-guilty-price-fixing
[Accessed 08 December 2018].
Economic Times, 2018. Google to appeal against $5 billion fine by EU in Android antitrust
case. [Online] Available at:
https://economictimes.indiatimes.com/news/international/business/google-to-appeal-against-
5-billion-fine-by-eu-in-android-antitrust-case/articleshow/65043390.cms [Accessed 08
December 2018].
Elias, P., 2018. StarKist Faces $100 Million Fine For Fixing Tuna Prices. [Online] Available
at: https://www.huffingtonpost.com/entry/starkist-guilty-price-
fixing_us_5bc9a3c6e4b055bc947f6d3cPaul Elias [Accessed 08 December 2018].
EU, 2018. Competition. [Online] Available at:
https://europa.eu/european-union/topics/competition_en [Accessed 08 December 2018].

Glance, D., 2017. Google’s defence for breaking EU law? Our users wanted us to do it.
[Online] Available at: http://theconversation.com/googles-defence-for-breaking-eu-law-our-
users-wanted-us-to-do-it-80218 [Accessed 08 December 2018].
Hunton Retail Industry , 2016. Complaint. [Online] Available at:
https://www.huntonretailindustryblog.com/wp-content/uploads/sites/16/2016/11/Walmart-
Tuna-Price-Fixing-Complaint.pdf [Accessed 08 December 2018].
Japan Times, 2018. Saudi Arabia prepares to boost supplies over Iran oil sanctions. [Online]
Available at: https://www.japantimes.co.jp/news/2018/11/04/business/saudi-arabia-prepares-
boost-supplies-iran-oil-sanctions/#.XApcZGgzbIU [Accessed 08 December 2018].
Meridian Lawyers , 2018. Competition Watchdog opens inquiry into Forex. [Online]
Available at: https://www.meridianlawyers.com.au/wp-content/uploads/2018/10/FS-Insight-
Competition-Watchdao-Opens-Inquiry-into-Forex-and-Remittance-Services-Oct-2018-3.pdf
[Accessed 08 December 2018].
Nielson, S., 2014. Apple's premium pricing strategy and product differentiation. [Online]
Available at: https://marketrealist.com/2014/02/apples-premium-pricing-strategy-product-
differentiation [Accessed 08 December 2018].
Sixel, L.M., 2018. Sysco smelled something fishy, sued over tuna prices. [Online] Available
at: https://www.houstonchronicle.com/business/article/Sysco-smelled-something-fishy-sued-
over-tuna-12526811.php [Accessed 08 December 2018].
Warren, T., 2018. Google fined a record $5 billion by the EU for Android antitrust violations.
[Online] Available at: https://www.theverge.com/2018/7/18/17580694/google-android-eu-
fine-antitrust [Accessed 08 December 2018].
Więcek-Janka, E., Kornecka, M., Papierz, M. & Nitka, M., 2017. Apple Products: A
Discussion of the Product Life Cycle. Advances in Economics, Business and Management
Research, 31(1), pp.159-64.