Economics group 4 topic and outlines

TOPIC : Price discrimination in Technology Transportation Service: Grab Vs GoViet in
Vietnam
A. INTRODUCTION
B. LITERATURE REVIEW
C. CRITICAL ANALYSIS AND PROBLEM SOLVING
1. Monopoly market
Overall market in the past: talking about how Grab has their own power to
control the price in the market in the past e.g. pushing prices up in rain and rushhours when consumer demand is less elastic. => monopolistic privilege.
2. New entrant to the market
Go-Viet is new in the market – then they have relatively few barriers to entry (low
overheads, service provider/app not the transportation company i.e. don’t need
to provide employee benefits, same strategies as Uber’s). Although Grab has
economy of scale, it’s more efficient (lower fixed costs and more driver
availability) for Grab to maximise their customer services.
3. Substitution effect
Go-Viet’s price strategy when entering the market: Go-Viet lower their price to
attract Grab’s customers (these two service providers are substitutes). This causes
the Grab demand curve shift leftward and pushes the price down, the quantity of
grab customers also falls.
4. First mover advantage
Therefore, Grab responds with a new strategy to lower their price, to match’s GoViet. The difficulty with this is the asymmetric information - Grab might lower its
price in anticipation of a price-cut/ promotion offer by Go-Viet and vice versa.
5. Social surplus and Monopolistic Competition
As Grab and Go-Viet compete, this causes a race to the bottom and erodes their
economic profit and maximizing consumer welfare. If this market is competitive,
MR=MC.
D. RECOMMENDATION
Future direction
Grab and GoViet cooperate (form a cartel) in the market to fix the price and
maximise their profit (producer surplus) i.e. duopoly market
OR

Grab buy the fledgling competitor and absorb Go-Viet, as they did absorb Uber in
Vietnam market or the case study of Instagram being absorbed by Facebook ->
monopoly market.
Recommendation:


It’s important to consider the negative social effects of a monopoly or duopoly – they
have the pricing power and social welfare (surplus) comes second to profit (producer
surplus).
We therefore recommend that government interfere in the market (because of the
distortion) by imposing a tax. Currently, Grab and Go-Viet are treated as a tech
company …the alternative is that govt policy should classify grab and go-Viet as
transportation (as with Uber in Europe) -> make higher tax. This should be used to
further consumer welfare in the country.
Furthermore, by classifying the company as transport -> drivers recognized and
protected employees.
However, this tax would -> increase in AVC and if this falls below MR the firms would
be pushed out of the market, because their economic profit is diminished, and they
no longer have an incentive to participate. Therefore, a delicate balance needs to be
maintained.
E. BIBLIOGRAPHY
References used in the assignment