Transcript Merit prize

Price War of Pork
Munsang College
By F.4B Ho Chi Kin
F.4B Wong Yat Lun Alan
F.4F Wong Anita Mo Yin
Background Information
 In the beginning of May, two chain supermarkets started a
price war by decreasing the price of pork to the average
of $19 per catty.
 The effect spread to the wet market as their price was
higher than the supermarkets.
 The wholesalers deeply opposed to this policy and
blocked the slaughter houses at Tsuen Wan and Sheung
Shui.
Many wholesalers accused that
Ng Fung Hong sells pork to
Park’N Shop at a lower price.
Here are the reasons
why Ng Fung Hong do this
Park’N Shop buys pork in bulk
Sells in bulk to a single buyer (Park’N)
will reduce the average cost of the seller
Thus, seller usually gives discount to the
buyer who buys in bulk
Why Park’N Shop
decreases the price of
the pork?
Reason 1
 If Ng Fung Hong sells
pork to Park’ N Shop at a
lower price, the cost of
Park’ N Shop in selling
pork decreases.
The supply of pork
increases.
Price decreases and the
quantity increases.
P
S1
S2
Loss in
revenue
p1
p2
As pork has a lot of
substitutes, the demand
for it is elastic.
 The percentage
decrease in price will be
less than the percentage
increase in quantity, so
the revenue will increase.
D
Gain in revenue
q1
q2
Q
Reason 2
 When Park’N Shop
decreases the price of pork,
more people will come to
buy pork.
Demand & supply of other goods
p
 In order to reduce the
transport cost and time cost,
people will buy other goods P2
there.
 Thus, the demand for other
goods in Park’N Shop
increases.
Increase in revenue
P1
D2
 The price and sales volume
of other goods increase.
 Revenue of other good
increases.
S
D1
Q1
Q2
Q
Other Reason
The market structure of supermarket in Hong
Kong belongs to oligopoly.
Wellcome & Park’N Shop dominate the market.
They enjoy brand name and goodwill so entry of
new seller is difficult.
They are interdependent. Whenever one of them
lowers the price to attract more business, the
other will follow.
So when one of them reduce the price of pork,
the other will follow.
Impact on the pork in Park’N Shop
S1
• When Park’N shop sets P
the price below the
new equilibrium price
• Quantity demanded >
Quantity supplied
• Shortage occurs
S2
P1
P2
Shortage
• Therefore there is
always a long queue
for buying pork
D
Q1 Qs2
Qd2
Q
Impact on the pork in the wet market
case 1
 The pork in Park’N
shop and pork in the wet
market are substitutes. P
 When the price of the
pork in Park’N shop
decreases, the demand
for the pork in wet
market decreases.
S
P1
Decrease in
revenue
P2
 The price and quantity
transected of the pork in
wet market decrease.
 Revenue of the wet
market decreases.
D1
D2
Q2
Q1
Q
Impact on the pork in the wet market
case 2
 When the price of
the pork in the wet
market is set above
the new equilibrium
price
 Quantity supplied >
Quantity demanded
S
P
P1
surplus
P2
 Surplus occurs
 Therefore a lot of
pork was hung
without being sold
D1
D2
Qd2 Qs2 Q1
Q
Impact on the pork buying from the
wholesalers
 When the quantity
transacted of pork in the P
wet market decreases,
the sellers will buy less
pork from the
P1
wholesalers.
 Demand for the pork of
wholesalers decreases.
 The price & quantity
transacted decrease.
 Thus, revenue of the
wholesalers decreases.
S
P2
D1
Decrease in
revenue
D2
Q2
Q1
Q
THE END