Analysis of price competition

Case Study

Supermarket concentration in Australia is quite high. Two leading supermarkets in Australia, Coles and Woolworths, control around 70% of nation’s grocery market. Since 2011, these two supermarkets have entered price wars on three staple goods – milk, eggs and bread. In late January 2011, Coles reduced the cost of a litre of milk to AUD$1, which was cheaper than a bottle of water, fruit juice and soft drink. More recently, in July 2017, Coles announced a reduction in price of bread and eggs. These profit maximizing supermarkets destroy their profit margin by supplying at such low prices. The low prices affect the market of these commodities by impacting the producers and consumers of milk, egg and bread. As a result, these price wars have also attracted the attention of the Australian Competition and Consumer Commission (ACCC), who have intervened.

The project:

Assume that you are the economist appointed by the ACCC to conduct an enquiry into the issue of price wars. You are required to write a report on the issue of grocery price wars, its effects on consumers, producers and the society. In doing so, you should address the following topics:

1. Provide a brief review of the academic literature on price wars (across the world). (Note: Here you need to discuss the academic literature published in academic journals. Blogs and websites do not count as academic literature and should only be cited as examples at most.)
2. Which ethical theories are utilised in the literature? (Note: Ensure that you make connections between theory and your research.)
3. What characteristics of the market structure allow these companies to engage in price wars?
4. What is the role of the ACCC in the market and how does it work? Provide an explanation with reference to microeconomic theory.
5. Based on your research, what is/are your recommendation/s to the ACCC? Ensure that you refer to ethical theories and microeconomics in your response.

Requirements

Length: 150 words for summary, 1200 words for body and 150 words for conclusion excluding references.

Structure: The report should have an introduction, a separate paragraph for each of the four topic areas, a short conclusion followed by references.

Formatting: Standard 12 point font, 1.5 line spacing, and side margins 2.5 wide.

Referencing: All references/sources should be cited following the Harvard referencing system. The references should be a combination of news, official reports and research papers.

Criteria and standards:

The estimated workload for this assignment is 20 hours. Your report will be marked based on the following rubric.