Definition: Monopoly is the kind of market with only “one seller” and its goods has no close...

Definition:

Monopoly is the kind of market with only “one seller” and its goods has no close substitutes. It is a price-searching market of which sellers search prices to maximize wealth.

$19.00/catty$19.00/catty

Mainland Pigs

NG FUNG HONG( 五豐行 )Sole Pork Supplier

&Wholesaler

Park’N Shop Wellcome Wet Market Butchers

Others Food Stores

Retailers

Ng Fung Hong is the sole agent selling imported mainland pigs

• Everyday, about 5,500 pigs are imported from the mainland and consumed in HK.

•All of them are slaughtered and sold to the market retailers by Ng Fung Hong Only.

In economic sense, the pork wholesaling market is a monopoly and Ng Fung Hong is a monopolist.

Why is it a monopolist?

Sole ownership of essential resources or

production technique

Patents or Copyrights

Monopoly right

Natural monopoly

Government franchise

Formation of cartel

Why is it a monopolistic competition?

Definition:

It is the kind of markets with

•A large number of sellers who are small and not associated. ( Within a district, there are many isolated wet market butchers and supermarkets)•Heterogeneous products ( Different shops may have different service and techniques )

•Imperfect information

•Free entry and exit

Sellers include:

Park’n shopWellcome Wet market butchers

Monopolistic Competition

• The pork retailing market is now in a monopolistic competition, Park’n shop and Wellcome may try to use price-cutting to drive away the small wet market butchers.

• In this way, Park’n shop and Wellcome can enlarge their market share and may turn the market into an oligopoly.

Monopolistic

Competition Oligopoly

•Besides, the supermarkets also want to change the traditional culture of buying food from wet market to buying from supermarket.

Imail (7 May)

…...Park n Shop announced on Friday that it would ``permanently'' cut the price of pork to an average HK$19 per catty and Wellcome followed …….

What implication can we get from this news?

• The pork retailing market is now in a monopolistic competition, Park’n shop and Wellcome may try to use price-cutting to drive away the small wet market butchers.

• In this way, Park’n shop and Wellcome can enlarge their market share and may turn the market into an oligopoly.

Monopolistic

Competition Oligopoly

•Besides, the supermarkets also want to change the traditional culture of buying food from wet market to buying from supermarket.

How can they be able to take such action?

Here are the possibilities:

• Ng Fung Hong, the pork supplier, may have given them a dis

count that enables them to have a lower price. (but it can not be pro

ved yet)

•They are large corporations, therefore, they have the sufficient

capital needed such as Park’N Shop under Hutchison Whampoa

Limited, Wellcome under Dairy Farm International Group.

•They buy pork in bulk, thus they can have a lower average cost

than the isolated butchers.

END THE MONOPOLY OF

NG FUNG HONG…….WE

CAN GAIN FROM IT!!!!

Some people, e.g. the Butchers, demanded:

Can we really gain from ending the monopoly of Ng Fung Hong?

Some people argued that after end of monopoly,

1. The price of the pork will not be so easily controlled by N

g Fung Hong.

2. More choices of wholesalers can be given to the retailers.

However, there are disadvantages as well,

Before,

Ng Fung Hong Retailers

AFTER,

Retailers

A

B

E

C

D

F

However, there are disadvantages as well,

Before,

Ng Fung Hong Retailers

MORE EFFICIENT

AFTER,

Retailers

A

B

E

C

D

F

LESS EFFICIENT

The benefits of the continuation of Ng Fung Hong’s monopoly

• Reduce Transaction cost

• Better quality control

- Ng Fung Hong centralizes the monitoring of the feedstuff and the quality of the imported mainland pigs.

Our Opinion:

Customers may now be happy about the cutting

prices of pork of supermarket. However, we believe th

at if the situation continues, it will not be good for the

customers since wet market may be replaced by super

market and disappear forever. Then prices will be mo

re easily controlled and customers will also be left with

fewer choices.

Group member: 6A

Cherry Cheung (9) Elaine Ng (21) Sarah Wong (27)