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1. R1: CCCS should intervene in the merger due to adverse effects

2. R2: CCCS should not intervene in the merger due to positive effects

3. Consider commenting on your friends' strategies to suggest improvements or ask questions

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1. R1: Price competition is a strategy to raise revenue + limitations

2. R2: Non-pricing strategy can also raise revenue + limitations

3. Consider commenting on your friends' strategies to suggest improvements or ask questions

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firstly, based on extract 4, the CCCS is unlikely to intervene in a merger situation unless the merged entity has or will have a market share of at least 40%. At the current moment before the merger, according to extract 3 table 2, Sheng Shiong has 26.6% of the total market share, while DFI has 21.5%. According to CCCS standards, the merged entity between Sheng Shiong and DFI would have a total market share of 48.1%, well above 40%. Possibly, due to the merger of these two supermarkets, the merged entity would thus be able to capture more market power and be able to have the power to create more BTEs, perhaps through the control of the supply chain, thus making it difficult for the other supermarkets in Singapore to operate. Furthermore, the supermarket with the next highest percentage of market share is actually Prime, with a share of 3.7 percent, followed by U Stars, with a share of 3.1%. Having 2 big firms , NTUC and the merged entity with almost 90% of the market share would also decrease the competitive culture of new want to be supermarkets. Also, the merger would also require intervention due to the adverse effects con consumers. Having 2 major supermarkets would allow it to be more easy for unfair practises such collusion or even price cartels, which could lead to unfair high prices. Before the merger, it would be more difficult to organise as there are 3 firms, but now there are only two. Thus the risk of unfair pricing which directly affects the consumers would be elevated, requiring the CCCS to intervene

However, the CCCS may not need to intervene. Afterall according to to extract 3, parties may report anticipated mergers or mergers to the CCCS if there are serious concerns whether it may lead to a substantial lessening of competition. Taking a less draconian stance than the other paragraph, it is still possible that the existence of NTUC which has 41.1% of the market share keeps the merged entity in check. The merged entity would only have slightly more market share than NTUC. Perhaps it is possible that the merger actually improves the level of competition of supermarkets in Singapore. For example, now NTUC would have to directly compete with one merged entity, instead of Sheng Shiong and DFI individually. The competition would be more clear, leading to a greater foresight. Thus, this could possibly encourage NTUC and the new merged entity to conduct more pricing and non pricing strategies, such as price competition or AC/MC pricing which would actually allow consumers to be able to purchase goods at lower prices, thus benefiting them. These two supermarkets could also perform non-pricing strategies such as R&D, like process and product innovation, which would lower the AC and MC, or increase MR and AR. Other supermarkets may also be able to learn from this R&D. Afterall imperfect information isn’t “no information”. Other supermarkets could also learn from this R&D and be able to improve their own businesses.

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R1: Increase in consumer surplus as firms pass savings in COP to consumers

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R1: Increase in consumer surplus as firms pass savings in COP to consumers

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R2: increase market power, allow them to set lower prices and employ competitive pricing to force other supermarkets to leave

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R1: should intervene bc will decrease CS and profits for other supermarkets

shengshiong and DFI combined 48.1%, this will dominate mkt as they will now have greater mkt share than NTUC; moreover NTUC + shengshiong & DFI after merger will be 89.2% > 60% thus these firms will have price setting ability and will dominate the market. for other smaller firms, they will not be able to earn as much profits and will shut down in the long run

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CCCS intervene due to adverse effects; consumer choice decreases due to less supermarkets. increased market share by one firm, increased market dominance, decreased competition, price setting ability leads to higher prices for consumers, and maximise revenue for these firms

should not intervene: increased competition > increased innovation, plus merger can combine technologies of both companies to increase consumer welfare, product and process innovation. Brings benefits to consumers. Process innovation; increased price competition, becomes more affordable for these consumers as well

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cheaper prices for consumer

R2: shouldn’t intervene

firm: higher market share, other firms forced to leave due to too much competition from dominant firm

consumer: market power might cause firms to increase prices making goods less affordable

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R1: intervene because merger will allow them to have higher monopolistic power, raising prices and restricting output hence worsening consumer surplus

R2: dont intervene as merger will increase supernormal profits which allows them to reap ieos and lower prices

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R1: shld intervene cuz merge entity will exceed 40% merket share

R2: allowing them to merge create competition for ntuc and prevent monopoly

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R1: Should intervene- merger increases market power, more power to engage in price competition (predatory pricing, knock out other sups) consumer welfare decreases also bc consumers have less variety

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R1: CCCS should intervene in the merger due to increased market share leading to less market competition. —> less incentivised to do R&D —> lower quality goods

R2: CCCS should not intervene in the merger as the merged firm can reap internal economies of scale and thus pass cost savings to consumers

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Worsening consumer surplus and variety

not incentivised to R&D

Other firms may shut down

Competitive pricing

Other firms can’t compete

Market dominance

R2 should not

Consumer

have lower prices due to IEOS

Have money to R&D so can have better quality or variety

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R1: the adverse effects on other firms whose profits fall to subnormal, leading to shutdown -> and hence consumers lose variety as well

when the firms merge, they are better able to reap IEOS allowing them to reduce prices

due to mutual interdependence, other firms will also reduce price to keep market share

for small firms especially, who cannot reap much IEOS, they may make subnormal profits in the long run

hence they shutdown and exit the market, leading to loss of variety in the market

R2: building on R1; the consumers can benefit in terms of lower prices

IEOS from R1

consumer surplus increases

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should increase because with merger -> fall in number of firms -> increase in market power + fall in availability of close substitutes +

[include graph for DD increase and PED becoming more inelastic]

thus increase price-setting ability ->fall in consumer surplus -> thus consumer welfare decreases

also becasue fall in close substitutes -> fall in product variety -> thus fall in consumer welfare as well

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R1:

Consumer surplus, consumer choice decreases

Firms can build higher BTE —> Rival firms: DD decrease, rev decrease, profits decrease —> may shut down

R2:

Larger mkt—> higher scale of production—> enjoy lower unit cop—> IEOS—> productive efficiency improves —> firms may pass on cost savings instead—> consumer surplus increases + product quality increases

Increase contestability of market—> push rival firms to innovate as well???

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R1: should intervene

Market dominance => AR and MR increase.

Set higher prices => consumer surplus decrease.

Control supply chains => increases cost-of production for other supermarkets.

Lower profits for other supermarkets.

R2: should not intervene

Reap internal economies of scale.

Advertising cost will spread over larger output => lower cost of production.

Cheaper for consumers

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R1: CCCS should intervene in the merger as with the merger, they have a larger market share and a larger consumer base, causing an increase in demand (AR & MR) of their products -> fall in profits of other supermarkets. Dominant firm -> able to set higher prices and lack of incentive to innovate -> fall in consumer surplus, consumer choice and product quality

R2: CCCS should not intervene in the merger -> larger scale of production -> reap internal economies of scale -> pass on cost savings to consumers

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1. Merger lowers competition, more market dominance, less choices and variety, higher P, lower CS. Less incentive to R&D because fewer competitors. Worse for consumers. Demand for other supermarkets fall, operate below AVC, shut down

2. Merger increases production, IEOS, less uCOP, pass on cost saving to consumers, P decreased. Other supermarkets incentivised to R&D to lower their own price and earn more profits?

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should intervene:

increased market share which allows them to raise prices but this decreases consumer welfare

should not:

IEOS through higher production

share existing capital

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due to the merger -> they are able to reap internal economies of scale -> costs are more spread out -> unit cost of production falls -> can pass on cost savings to consumers -> consumers can enjoy lower prices

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better able to do innovation and R&D, better quality of products

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R1: If shengshiong and DFI merge then there will be a combined market share of 48.1%. This significantly increases their market power. Therefore the degree of competition in the industry will significantly decrease. Demand for new firms will increase and price will become inelastic as there are less substitutes available, thus price will increase for consumers. Thus, they should intervene.

R2: Merged firms can enjoy IEOS, can charge lower prices. Thus, firms enjoy lower costs, and will pass on cost savings to consumers via lower prices.

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merger gives NTUC Fairprice a newer, more threatening competitor

both NTUC and merged company forced to improve quality of goods, wider variety and quality of goods available to consumers - consumer surplus increases

lower prices of merged company's goods due to IEOS

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R1: CCCS should intervene because consumers are worse off during a merger

Merger causes the firms to merge

AR and MR become greater and more price inelastic

using magic, I conclude that prices of supermarket goods increases ==> If prices of essential goods such as my milk and vegetables increases, there will be equity issues so consumers are worse off

R2: CCCS should not intervene because consumers get better products through product innovation, so consumers are better off

More market power and more revenue and supernormal profits and more IEOS ==> more money to innovate and make better good, especially in this context where supermarkets can make their own brands like what NTUC does

however, haha, we know big corpos won’t innovate because they love the money pouring in their pockets and shareholder pockets therefore I conclude that CCCS should intervene because, while the supermarkets COULD innovate, they don’t have a big enough incentive to do so; the increase in price is more likely to happen more readily compared to product innovation

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R1: should intervene

merger will result in them having an ever larger market share -> greater market dominance -> greater ability to set prices and control output

merger will have greater brand loyalty and thus demand, PED will also be less than 1, curve steeper

AR and MR shift right

smaller firms will shut down in LR

also may not have incentive to innovate / product differentiate in LR, consumer welfare decrease

R2: shld not intervene

greater iEOS so can have lower cost per unit product

pass on lower costs to consumers

increase consumer welfare

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R1:

Decrease in variety of products for consumer

increase market share of the merger firm, increase in TR => small firms exit due to subnormal profits

R2:

IEoS, cost-saving passed on consumer in the form of lower prices

Merged talent pool => better capacity to do R&D/marketing

Higher quality of goods/lower cost if increased profited are invested into R&D

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Pricing strategies:

Predatory pricing; the competition is an oligopoly, with two big firms merging, so this will (probably) work in killing off other supermarket chains, therefore reducing competition, therefore increasing profits and securing supernormal profits

Non-Pricing Strategies:

Diversification; sell more than just vegetables and fruits physically, e.g. use online shopping or sell more commodities, therefore you attract a larger consumer base, therefore increase AR and MR