Price Fixing in Tuna Industry

Question 1

(a) In this case study, the three giants in the industry collaborated and agreed either on the written form or verbally to set the prices of canned tuna very high and which would be maintained at the same position despite the fluctuations in the prices of raw tuna. That is to mean that even if the prices of raw tuna decreased, the price of canned tuna could be kept high hence amassing abnormal profits at the expense of consumers.

(b) In accordance to the law of demand and supply, I expect that when the price of raw tuna goes up that the price of canned tuna increases and when the price of raw tuna declines, the price of canned tuna to decline also (Whisenant and Willenborg, 2016). However, under the revealed case where the three giants in the industry collaborated to fix the prices, they agreed on a high price which despite a decline in the prices of the raw tuna would still be maintained high hence accumulating abnormal profits.

(c) The industry is expected to have had many firms in the past but because of mergers and acquisitions, the small firms were acquired by the large firms to remain three giants in the industry (StarKist, Chicken of the Sea and Bumble Bee). The market structure hence changed from a monopolistic competition where price fixing is not easy to become an oligopoly where the freedom of few firms makes it easy for them to collaborate and fix the prices as presented in the case study.

(d) Consumers in this market were the ones on the receiving end of this heinous act because, despite the decline in the prices of raw tuna which could be expected to relieve them of the burden of high prices, the prices could remain high hence burdening the frequent consumers of canned tuna.

Question 2

According to the World Bank statistics, Australia was ranked third among the most expensive G20 countries for small businesses and consumers to send money from.  For instance, a customer wishing to travel overseas to spend $5,000 on their credit cards would incur almost $140 as foreign exchange fee and that was termed as a rip-off to the Australians (Ally,  Gardiner and Lane, 2016).

Four big banks in Australia

Commonwealth Bank of Australia (CBA)

Westpac Banking Corporation (Westpac)

Australian and New Zealand Banking Group (ANZ)

National Australian Bank (ANZ)

Expensive Money Transfer in Australia

Three largest online money transfer companies

OFX

World First

XE Money Transfer

According to the chairman of ACCC, the big four banks of Australia in addition to the online money transfer companies were charging high prices for money transfer which was abnormal considering the economic fluctuations from time to time. Also, compared to the rest of G20 countries, the prices for money transfer were very high to raise suspicion on the transparency of the organizations in terms of pricing.

(c) The inquiry will mainly target to know whether there may be price fixing and therefore intelligence unit will be highly engaged in the process. The main agenda will be to reveal the reason behind high charges on foreign exchange services when compared to the other G20 countries.

Question 3

The main goal of competition policy is to enhance consumer well-being. It addresses the supply side of the market to ensure consumers get adequate goods under affordable prices. Below are the reasons why EU adopted the competition policy (Baker and Salop, 2015, p.1)

• Enable technological innovations which promote dynamic efficiency  the market
• Achieve effective price competition amongst suppliers
• Safeguarding and promoting consumers interests through lower prices and increased choices

The three competition policy tools in the European Union are

• Antitrust & cartels
• Market liberalization
• State aid control

Question 4

(a) Google Company had abused its market dominance as a major search engine by favouring its shopping services compared to others in its own search results and downgrading those of competitors. It was accused of subjecting competitor services to algorithms that pushed them down the search list to rarely be seen by the customers (Clark, 2016, p.1021). Google shopping, however, was not subject to such an algorithm and hence could appear on the top page. Through that, it repudiated other companies’ chances of competing on merits and innovation. It had also deprived genuine service choices and full innovation benefits to European consumers.

(b) In response to the antitrust allegations by the European Commission, Google fired two blogs packed with statistics to support its claim that its search engine had no harm to other businesses. Through the company’s executive, it brushed off the allegations claiming that web users had more choices to access online content than before, from Cortana-powered searches and speciality sites like eBay to a swing of other search engines. The company went ahead to defend itself from its competitor’s claims by giving the statistics of how revenue had grown for those companies in the last four years and that the competitors were losing out to other sites like Amazon and not google.

Question 5

(a) The EU commission accused Google of the practice of bundling Android software with full Google apps suite. According to the commission, Google secured this dominance by collaborating with smartphone and tablet manufacturers to exclusively pre-install Google’s own applications or services which is illegal as per the antitrust laws (Ginsburg, Geradin and Klovers, 2018). Also, Google Company was alleged for demanding phone makers to sign in order to access its popular digital services like its app store. That was seen as taking unfair advantage over its rivals and potentially hampering consumer choice.

Competition Policy in EU

(b) Google refuted the claims by the European Commission by stating that Android has increased consumer choice around the world and that about 84% of the mobile operating system in the world used android.

Question 6

(a) According to the Federation of the Swiss Watch Industry, Chinese was recorded to be the largest market of Swiss luxury watches. Specifically, it was estimated to be the source of half of the Swiss watch industry’s global revenue. It accounted for 44.3% of Swiss Luxury watches market.

(b) Luxury Gifting was considered to be among the motivators of corruption especially considering the belief in Chinese people that a gift extended must be recompensed back in a different way. Specifically targeting the government officials who could receive luxurious gifts and then reciprocate by offering opportunities or other services illegally, the Chinese government cracked down the idea of gifting (Prasad, da Silva and Nickow, 2018, p.35). Considering the fact that Swiss luxury watches were among the most preferred gifts, the crackdown by the anti-corruption policy saw the demand decline.

(c) Upselling and cross-selling to increase average unit of sale: the company should increase the amount it sells to its customers at one time and that will see an improvement  in its profit margins because I will be increasing the purchase velocity and lowering its cost per sale in terms of overhead burden.

Cutting down on low margin clients and investing its resources on high potential clients: this approach will work after the company implements a timely reporting to know the clients who are high potential and those who have low margins so that it can concentrate on the high potential ones.

Question 7

(a) In June, the price of oil was $115 per barrel but has fallen to nearly below $70 after nearly 5 years of stability. The prices have fallen to nearly below $70 per barrel. Oil prices are partly determined by the ideal supply and demand law and partly by expectation (Liao, Shi and Xu,  2018, p.60). The supply of oil before was partly low in the main producers of oil which are the United States, Saudi Arabia, Iraq, Iran, and Russia. In addition to Iraq and Iran where conflicts have been ongoing for long interrupting the production process, this saw the supply of oil being low to sustain the high demand hence causing a spike in the prices.

Question 8

(a) The product life cycle is a concept in economics used to describe the stages undergone by a product from the moment it was first thought of up to the time when it finally quits the market. There are four main stages in the product lifecycle (Stark,  2015)

Google’s Antitrust Allegations

Introduction Stage – this is the stage when a company launches a new product on the market. The product market size is small implying that the sales are also low, although they keep on increasing

Growth Stage – this is the stage when the product sales and profit start to increase because of the benefit from economies of scale and the profit margins began to increase

Maturity Stage – in this stage, the product becomes fully established leaving the manufacturer with the responsibility of maintaining the market

Decline Stage – in this stage, the product market starts to shrink due to the market becoming more saturated or consumers switching to different products.

(b) Designing its products with longevity in mind: the company has adopted the trend of creating its Macs, I Watches, iPods and iPhones in an adaptable way and leaving the room for real-time alteration to add the latest technical innovations

The constant addition of new features: Apple Company adds new features to its products from time to time and that makes them desirable and tracks the interests of the buyers. This entails improving the features of its products like camera, connectivity, and storage not to forget the speed of the product.

(c) Perception of product and brand image

Apple Inc. is famous for designing, producing and selling products such as iMac, iPhones, iPods, and music. Its products brand-perception and identification differentiates it from other companies. The company has numerous product features that are distinct and unique in the current marketplace

Skimming pricing strategy

The company uses this strategy for products which it aspires to launch in the market by selling them at relatively high cost at the beginning because of the unique features and benefits to consumers and then drops the price with time

Minimum advertised price

This strategy prohibits dealers and resellers from advertising the company’s products below a certain price. It enforces the strategy through marketing the subsidies which are offered by producers to its resellers.

References

Ally, M., Gardiner, M. and Lane, M., 2016. The potential impact of digital currencies on the Australian economy. arXiv preprint arXiv:1606.02462.

Baker, J.B. and Salop, S.C., 2015. Antitrust, competition policy, and inequality. Geo. LJ Online, 104, p.1.

Clark, T., 2016. Google v. Commissioner: A Comparison of European Union and United States Antitrust Law. Seton Hall L. Rev., 47, p.1021.

Ginsburg, D.H., Geradin, D. and Klovers, K., 2018. Antitrust and Intellectual Property in the United States and the European Union.

Liao, J., Shi, Y. and Xu, X., 2018. Why Is the Correlation between Crude Oil Prices and the US Dollar Exchange Rate Time-Varying?-Explanations Based on the Role of Key Mediators. International Journal of Financial Studies, 6(3), p.61.

Prasad, M., da Silva, M.B.M. and Nickow, A., 2018. Approaches to Corruption: a Synthesis of the Scholarship. Studies in Comparative International Development, pp.1-37.

Stark, J., 2015. Product lifecycle management. In Product Lifecycle Management (Volume 1) (pp. 1-29). Springer, Cham.

Whisenant, S. and Willenborg, M., 2016. Price Competition Within the Large Audit Firm Oligopoly: A Panel Data Analysis of Initial Engagements.