BHMH 2105 Business Economics
23/24 Semester One
Individual Assignment Two
Guidelines:
Attempt all questions.
Please handwrite your answers and it must be in ENGLISH.
Clearly label and identify all diagrams (if any).
Please ensure the originality of your work. Plagiarism is prohibited.
Please review your spelling, grammar and sentence structure of your
work. Marks will be deducted for poor English writing.
Please use the Answer Sheets provided when you hand in your
assignment.
Please hand in your answer script during the tutorial lesson specified.
Deadline:
On: 22 Nov 2023 (Wednesday)
Tutorial Group: A04A / A04B
1/2
Answer the following questions related to the case stated. Real examples from
relevant sources for Questions 1 to 3 are expected to provide in this assignment.
The grocery industry in Hong Kong refers to
“foodstuffs such as crisps, candies, beverages etc. and household necessities such as
cleaning supplies, dustpans, sanitary products etc. that are available to consumers in the
retailing sector. When the term grocery retail store is mentioned, consumers in Hong Kong
usually recall tuck shop or provision store that sell food such as rice, eggs, oil, condiments,
candies, beverages and some household items. However, there are only very limited stores
as such left in Hong Kong and now grocery stores have transformed to be operated
through three major retail channels: i) grocery stores, ii) department stores, and iii)
supermarkets.”
Source: https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0111/a18168/e113.pdf
1. To what extent, the grocery industry in Hong Kong is considered as a perfectly
competitive market based on the four major characteristics of perfect competition.
(10 marks)
2. Analyze the sources of market power that “7-Eleven of Hong Kong” is having from the
following aspects. (9 marks)
a. Economies of scope
b. Product differentiation
c. Government regulation
3. “7-Eleven of Hong Kong” adopts different pricing strategies to maximize profit. Explain
the following strategies adopted by the “7-Eleven of Hong Kong” with one real example
containing concrete details like brands, prices, modes or pictures. If no such pricing
strategy being adopted by the firm now, propose one real example for the firm instead.
(9 marks)
a. Block pricing
b. Third degree price discrimination
c. Direct segment discrimination
4. KK Store and NN Store are two small supermarkets operating in a remote village in
Yuen Long. Both stores are now considering on the strategies of launching price war
or maintaining stable prices. The owners of both stores are given the following
information:
If one launches price war, and its rival launches price war, each of them will earn
$5K in profits.
If one maintains stable prices and its rival maintains stable prices, each of them
will earn $11K in profits.
However, if one of them launches price war and the other maintains stable prices,
the firm that launches price war will earn $17K and the one maintains stable
prices will earn $3K.
a. Draw the payoff matrix for this game. (4 marks)
b. Explain whether there is a dominant strategy for KK Store. (3 marks)
c. What is the Nash equilibrium, if any, for the case quoted? Explain. (2 marks)
d. What is the name of this game? (1 mark)
e. If both stores are playing repeated games, what do you expect the result? (2 marks)
2/2
