Tacit Oligopoly of the Original Supermarkets of Bogor

Extended Essay in Economics Tacit Oligopoly of the Original Super merchandises of bog Written By B Diploma Candidate Session password Count Abstract The mart mart of Bog has been facing a significant change during the past several years. Sudden emergence of in the buff suppliers has more than than doubled the number of existing supermarkets. I in like mannerk interest at the fact that despite of the sudden increase in the number of suppliers, there never was a expense decrease. This signifies that the market is experiencing Over publish.I decided to investigate whether the strain caused by the all over supply ingest hanged a exposeicular part of the market social structure of the supermarkets of Bog. I took to compete a bring home the baconst new competitors. My first step was to investigate whether the supermarkets shows qualitys of an oligopoly. Several factors are apparent the number of firms in the market is sm any, their size is comparatively big, their overlaps a re slightly differentiated, and the entry restraints are high. To further streng therefore my claim concerning the barrier, I have studied a low portion of two legal documents that concerns kickoff a supermarket disdain. by and by, I have recorded product impairments and per practiceed statistical analysis to determine whether the price commit is narrow. I then compare the prices of the new supermarkets and all the supermarkets of Bog as a intact. The result shows that indeed there is an oligopoly yet it extends to reach the new supermarkets. This meaner that the genuine supermarkets have not segregate themselves to attempt gain business power (e. G. In pricing). New questions are formed based on the results. Among them is whether the oligopoly intentional or has competition with other suppliers, e. G. The traditional markets, caused the price range to be limited?These questions require further researches that are likely to orientate to the Business Studies disciplines. Wor d count 295 Table of Contents break 1 An entree to the Essay Part 2 The Present marketplace Profile Part 3 Review of Relevant Theories 2 3 5 7 Part 4 Hypothesis and Methodology of Research Part 5 Data Collection and Analysis Part 6 Conclusion and Evaluation 17 10 12 Bibliography 18 Appendix 2 Appendix 3 Acknowledgements Part 1 An Introduction to the Essay 20 21 Bog is a barbarian city that is founded over two centuries ago, thus by now it is wholesome known by its surrounding cities and villages.The city was established as a midway of trade for local agricultural industries (Incarnate). As a citizen of the city ever since birth, I know well that the food market market of the city is massive. The vast and well known open air market of fresh produces called Papas Bog (or the Market of Bog), numerous minor grocers, five notable supermarkets, and the easily accessible shopping centers in Jakarta have supplied the household demands of the 3,696,848 citizens residing in Bog (the fi gure was recorded at a 1997 census) (Incarnate). The market status, however, have taken a significant pull during the last 10 years.Numerous new suppliers entered the market among them are as much as five new supermarkets (doubling the present number), two hypermarkets, and two new mini- market chains. Among the very basic principles taught to economics students is the Market Equilibrium law. It states that the demand and supply of a product is dependent of the price level. The consumers pick out lower prices while the suppliers prefer higher prices. Where the two quantities met, it is called the Equilibrium point. (Collier, 201) Diagram 1. 0 shows this point of importance as (SQL, Pl). Diagram 1. 0.The Micro Economic Model of the Grocery Market angle in the Supply line. Diagram 1. 0 portrays this scenario by having the line gaugeed Supply 1 shift to become Supply 2. This shift will cause the counterweight to increase in quantity but decrease in price (Collier, 191). However, t here never was a significant price decrease in the grocery market of Bog. The supply line may shift, but the price is maintained at Pl, and theoretically this must result in an Over Supply. An Over Supply occurs when the quantity of supply exceeds the quantity of demand. (Collier, 203) pick Diagram 1. 1 . Illustration of the market experiencing Over SupplyThe Over Supply strains the suppliers, since it meaner that some of their stock will remain standing(prenominal) and inevitably experience depreciation -which in turn will result in business failure. Despite, logically thinking, the side that was experiencing the biggest lost of consumers will be the suppliers (supermarket, and so on ) in Jakarta inevitably the local suppliers of Bog too will share part of the strain. However, the pressure will not be as exhausting on the new competitors as it would be to the original suppliers since all new competitors belong to a nationwide company (details are located in part 2 the Present M arket Profile).There is the possibility that the demand line has shift along (or even preliminary) to the shift of the supply line. However, through observation I have noticed that there never was an apparent change in the factors that may trigger a shift of the demand line. Those factors are price of substitute products, price of complementary goods, general income and taste (preference), the population, and advertisements (Galilee, 24). The original supermarkets (from this point this term will be used to refer to the supermarkets that have existed before the sudden emergence of new competitors) concerned me the most.The Market of Bog and other minor suppliers surely offered the least prize, thus they have a separate market segment. My concern would be whether the business pressure is strong enough for the original supermarkets to from a implicit oligopoly. Thus was formed the research question Did the original supermarkets of Bog form a tacit oligopoly to compete against the new competitors? The next part of the essay will reveal the present market profile. Following it will be a review of germane(predicate) theories, which serves as a base for the hypothesis.After discussing my methods of research to verify my hypothesis, the ATA collected will be presented and analyzed. Thus, a conclusion will be formed, along unanswered questions and likely sources of error. Part 2 The Present Market Profile Original Supermarkets Ingest Supermarket (3 outlets) Grand Supermarket Shanghai-La Supermarket New Supermarkets Hero Supermarket Matriarch Marketplace AG Groceries soda Supermarket Ramadan Supermarket New Hypermarkets Giant Hypermarket Hypermarket Hypermarket.New Mini-markets Intimidator Alfalfas Other competitors The Market of Bog Minor Grocers Suppliers (supermarket, etc. ) of Jakarta A minor grocer is a reference towards traditional Ind unmatchedsian grocery suppliers, known locally as Warnings. It tends to be a small store, not often would you found one the si ze of a typical bathroom. The goods it sells are usually minor needs, such as cigars, sweets, and hygiene products. The appearance of the outlets tends to be ignored and they could be found dispersed around the vicinity of the city.However, the term mint-markets refers towards literal small supermarkets. Its design and facilities equal those of a supermarket and thus it presents its customers with every benefits of a supermarket besides variety of product. The mint-markets belong to a nationwide chain and they have an outlet in seemingly every residential area of the city. Despite being under the same brand, the three outlets of Ingest Supermarket belong to different people. It originated as a common soldier Limited company, but now the three branches are run separately by three children of the original founder. Note Opt Tab is the Indonesian label for a Public Limited company) Hero Supermarkets and Giant Hypermarket belong to OPT. Hero Supermarket Tab. Matriarch Market Place (a s upermarket) and Hypermarket (a hypermarket) belong to OPT. Matriarch Putter Prima Tab. ? Ramadan Supermarket belongs to OPT. Ramadan Alistair Santos Tab. sick Mart Groceries and DAD Supermarket belong to different companies but both own more than one outlet situated in different cities of the country. The mint-market chain Intimidator belongs to OPT.Indicator prismatic (a Limited company that belongs to the Indoors group, whose owner once so far as become Indonesian richest entrepreneur). The Alfalfas mint-market chain belongs to OPT Summer Alfalfa ternary Biding Shah (a Limited company) and is about to be integrated to OPT Ramadan Alistair Santos Tab that owns the Ramadan Supermarket (see above). Art 3 Review of Relevant Theories Sisters Paramus Sisters Paramus is an assumption that every factor other than the one being discussed remains constant (Galilee, 10). Every part of this essay is create verbally on Sisters Paramus.To investigate whether the original supermarkets of Bog have formed an oligopoly, first the characteristic of that particular market structure and other alternatives must be pre-determined. 1). A Monopoly This is a market where there is a single seller. It has absolute cook over the prices of the market due the unavailability of substitute products. Due to this fact, often times monopolies are placed under strict control of the government. (Galilee, 120) A monopolized market requires the highest forms of barrier of entry.This meaner that people interested in entering the market ought to proceed through many difficult requirements which often was impossible to attain. The highest barrier that one may befall is governmental laws, and indeed it was often intentionally employed to create monopolies. (Collier, 269) A good example would be Indonesian PLAN, its sole electricity supplier for the whole nation. It was the only entity n the market for mass electricity and legal laws forbid any enterprise to enter the market. In this particular ca se, the government owned the company. This grants them upper limit control over the market.The huge sales volume was directed towards the governments fund. 2). Assumptions of an Oligopoly An oligopoly is a market situation where there are few sellers and each firm may be aware of the activities of some other. There are high barriers of entry -but these are lower than those of a monopoly. The products they offered tend to be differentiated goods, this refers to goods that are derived from an original form (e. . Shampoos may be differentiated to anti-hair-loss, scalp oil controlling, etc). (Galilee, 140) The few firms in the market collude together and act like a monopoly formed by many entities.A formal collision is called a cartel, and the original supermarkets of Bog do not belong to a formal cartel. An unofficial collusion is referred to as a tacit oligopoly. (Galilee, 140) The colluding firms will have an agreement about price range, advertising, market share, and possibly corpo rate business strategies. Their semi-monopoly allows the firm sizes to be big. (Galilee, 140) 3). Assumptions of a Monopolistic Market A monopolistic market is when many firms compete in the same market, change similar yet differentiated goods or services.The barrier of entry is relatively low compared to the previous two market structures discussed. (Galilee, 114) each other but are differentiated. A consumer may switch his preference from one brand to another and will not experience a significant change in utility. Note however, that when talking about such products, there are several items on the market with very distinguished feature (special brand of clothing, etc. ) that belongs to ice markets. These products are not part of a monopolistic market.The degree of price control (however weak) of a monopolistic market is attributed towards this slight differentiation. If the product is entirely homogeneous, no firm will have control over its prices, turning it into a staring(a) C ompetition Market. (Galilee, 114) 4). Assumptions of a Perfect Competition Market A perfect competition market houses extreme amounts of producers, none of which possessing a high rate of market share. The products are homogeneous (exactly the same), and the barrier of entry is near to non-existent. No firm has any influence over the markets price.The homogeneity of the product does not allow selling above market price (since it will result in severe loss), and the fierce amount of competition did not allow the firms to engage in a price war dodge (setting price lower), since the market price is already set as close to the cost of production as it could be. If indeed the watercourse price is a degree above the average cost of producing the goods, then a firm may employ a price war strategy and enjoyed supernormal profit for a period of time, but other competitors will follow suit immediately.Part 4 Hypothesis and Methodology of Research My hypothesis is the original supermarkets of Bog have formed a tacit oligopoly that is separate from the new supermarkets to gain business power. As discussed in the introduction and the market profile surgical incision of this essay, it is unquestionable that the original supermarkets experience a degree of pressure from the sudden establishment of new competitors. I believe that it is only logical for them to attempt make the overall competition more endurable by forming a segregated oligopoly.This way, they may attempt corporate business strategies, especially on the matter of racing. To hear this hypothesis, I must attempt to correlate the supermarkets with characteristics of an oligopoly. Those are Number of firms few. Products are slightly differentiated (as in groceries). Big. High barrier of entrance. C Similar price range. size of it of firms relatively The first three characteristics are theoretical and apparent. There are a small number of firms (compared to the monopolistic food and beverage business or the per fect competition green grocers, for example).All supermarkets sell many identical products (common brand and package size) and the nature of these products is in neural only slightly differentiated. The size of the firms too is relatively big, proven to us by the existence of mint-markets which are smaller representatives of supermarkets. As of the barrier of entering the market, it is only logical that it is high. A supermarket is visibly a large scale business -meaning that it requires a big amount of capital to start. Furthermore, the products offered by a supermarket are numerous in variety.For every single product they would have to prepare legal methodologies of payment, storage, delivery, and shelf placement -this surely is a significant entry to the supermarket business is high. The last missing information is their product prices. I will record the prices of all supermarkets and perform statistical analysis to determine their price range. If the prices posed by the original supermarkets are similar to each other, then it is proven that they indeed do form a tacit oligopoly.The next part of the research would be comparing the price of the original supermarkets to the new supermarkets. Afterwards I shall perform identical mathematical analysis as before. If indeed the two results (the first being the price range of the original supermarkets alone and the back up data being the price range f all supermarkets) are different, then indeed we would know that the original supermarkets of Bog have formed an oligopoly that segregated them.Diagram 4. 0 shows the Market with the original supermarkets segregating themselves and formed an entirely new team (oligopoly). This way, possibilities to compete better will open to them, e. G. A corporate pricing strategy. However, if their price range is similar, then we may conclude that all the supermarkets as a whole is an oligopoly and so the original supermarkets have not segregated themselves by make an oligopoly o f their own. Diagram 4. Wows an oligopoly that includes both the original and the new part 5 Data Collection and Analysis Before proceeding with the price analysis, I would like to spike my claim concerning the high entry barrier. Here are parts of two legal documents that concern opening a new supermarket business. Note that the documents are written in the Indonesian language (Bass Indonesia), thus the translations present are my personal attempt. Here is a transcript from the Peered tenting Pentagonal Shah Industry Separate Bog Regional Regulation Concerning the Managing of Industries in the Bog Region