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Price War of Pork Munsang College By F.4B Ho Chi Kin F.4B Wong Yat Lun Alan F.4F Wong Anita Mo Yin.

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Presentation on theme: "Price War of Pork Munsang College By F.4B Ho Chi Kin F.4B Wong Yat Lun Alan F.4F Wong Anita Mo Yin."— Presentation transcript:

1 Price War of Pork Munsang College By F.4B Ho Chi Kin F.4B Wong Yat Lun Alan F.4F Wong Anita Mo Yin

2 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.

3 Many wholesalers accused that Ng Fung Hong sells pork to Park’N Shop at a lower price.

4 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

5 Why Park’N Shop decreases the price of the pork?

6 Reason 1 Q P D S1 S2 p1 p2 q1q2 Gain in revenue Loss in revenue  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.  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.

7 Reason 2  When Park’N Shop decreases the price of pork, more people will come to buy pork.  In order to reduce the transport cost and time cost, people will buy other goods there.  Thus, the demand for other goods in Park’N Shop increases.  The price and sales volume of other goods increase.  Revenue of other good increases. Demand & supply of other goods D2D2 p Q D1D1 S P1P1 P2P2 Q1Q1 Q2Q2 Increase in revenue

8 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.

9 Impact on the pork in Park’N Shop When Park’N shop sets the price below the new equilibrium price Quantity demanded > Quantity supplied Shortage occurs Therefore there is always a long queue for buying pork P Q P1P1 P2P2 Q1 Q s2 Q d2 Shortage S1S1 S2S2 D

10 Impact on the pork in the wet market case 1  The pork in Park’N shop and pork in the wet market are substitutes.  When the price of the pork in Park’N shop decreases, the demand for the pork in wet market decreases.  The price and quantity transected of the pork in wet market decrease.  Revenue of the wet market decreases. P Q D1 D2 Q2Q1 P1 P2 S Decrease in revenue

11 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  Surplus occurs  Therefore a lot of pork was hung without being sold P1 P2 S D1 D2 Qd 2 Qs2Q1Q1 surplus P Q

12 Impact on the pork buying from the wholesalers  When the quantity transacted of pork in the wet market decreases, the sellers will buy less pork from the wholesalers.  Demand for the pork of wholesalers decreases.  The price & quantity transacted decrease.  Thus, revenue of the wholesalers decreases. P Q S D1 D2 Q1Q2 P2 P1 Decrease in revenue

13 THE END


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