Market Competition: the Shek Tong Tsui seafood market

Market Competition Fish

To what level does indeed the Shek Tong Tsui fish market demonstrate perfect market competition

Abstract

This essay analyses to what extent the fish market illustrates perfect competition. The results from the study of the prices paid by specific buyers at the Shek Tong Tsui fish market in Hong Kong. As assumptions, the fish market is an extremely competitive market in which there should be no predictable price differences across customers who've identical price elasticities of demand.

The results obtained from this investigation reveal that different clients pay different charges for fish of similar quality. For instance, some Asian customers may pay less for fishes than white Caucasian potential buyers, an outcome which is inconsistent with the style of perfect competition. In reality, there is no industry that comes exactly in perfect competition but there are a few industries that come close like the fish market industry.

Introduction

To economists, it could seem that whenever we have a sizable centralised market with knowledgeable buyers and sellers, there should be a very competitive market. However, fish is an extremely differentiated product to vendors. There may be insufficient information for clients because they could look the same to them. Purchasers will often wish to examine the fish themselves to check on for quality or have their realtors achieve this task before purchasing.

The centralized market executes an important function in matching fish to buyers since every customer have very different price elasticities of demand. The buyers at the seafood market will become realtors for consumers with different elasticities of demand, from restaurants in the real estate district selling seafood ball noodles, to expensive commercial high class restaurants offering their chef suggestions, to fry outlets serving seafood sandwiches, to suburban seafood shops. The high level of product differentiation in the fish market can lead to patterns of behavior that suggest market that is close to perfect competition.

The companies usually reach the marketplace at dawn, newly supplied from the wholesaler to the stall. The Shek Tong Tsui market opens up at 7:00am each day and closes at around 8:00pm.

Pricing at the Market

The quantity offered of fish taken to the market depends upon many key factors. The elements is one of the most crucial determinants of resource since strong, powerful winds and high waves can make it difficult to catch fishes. The volumes may face downfall and prices may grow whenever there are storms.

While quantities climb, the prices show up in good weather. Without centralisation, it can be unclear if the price response might have been as effective for demand to match supply as potential buyers might have suspected gouging on the part of the vendors if prices were not easily similar.

From observation, the prices of the fishes are usually at its highest during the morning hours when the market opens it is because the fishes are at its freshest condition. While the prices of fishes are in its minimum during night time when the marketplace is going to close because owner wants to reduce the fishes that are not fresh anymore. Furthermore, the stall keepers seem to price differently by nationality for example, they ask for more on Caucasians then they charge on residents.

Data Analysis

Primary research is conducted through observation of the marketplace and extra resources such as the media to see whether it impacts the costs of the several stalls and also deciding what market does indeed the fish market rest on. Data will be collected during the summer months. Observations may include daily prices and average daily prices of a few stall on the certain type seafood on everyone or two days and nights for around one week.

Pricing of the Golden Thread

Date

2008/8/1

2008/8/2

2008/8/4

2008/8/5

2008/8/7

Average

Price

Stall 1: Price (HK$/Catty)

20. 2

13. 4

32. 2

21. 3

22. 0

21. 82

Stall 2: Price

(HK$/Catty)

20. 9

13. 5

32. 1

21. 7

22. 5

22. 14

Stall 3: Price

(HK$/Catty)

21. 0

13. 0

32. 9

21. 7

22. 3

22. 18

Average Daily Price (HK$/Catty)

20. 7

13. 3

32. 4

21. 6

22. 3

 

As we can easily see from the wholesaling price graph, before Typhoon Kammuri got on Hong Kong (around 7am on August 5th), the price of the Golden Thread was at its highest ($36/Catty) simply because when there's a typhoon you will see no fishes available. We can therefore conclude that the elements will affect the purchase price and the sellers will try to boost the prices when there is a limited amount of stock.

Assumptions of Perfect Competition

Perfect competition is a explanation of a market composition whose assumptions are strong and highly unlikely to exist in the real world markets. The truth is, most marketplaces are imperfectly competitive. However, there is some understanding of how price, creation end result and equilibrium is established in the short and long haul that makes it a perfect competition.

The industry comprises of a very large number of firms. Each organization is so small, relative to how big is the industry so one strong's action will not affect the supply curve of the industry as well as the price of the product. Specific firms have to market at whatever price is set by demand and supply in the industry as a whole. Stalls in the fish market are "price-takers.

Firms all sell "homogeneous goods so that it is not possible to distinguish between a good sold in one stall and a good sold in other. You will find no brand names and there is no marketing to attempt to make goods different from one another.

Firms are free to get into or leave the industry in other words there are no barriers to entry and leave. All retailers and consumers are fully aware of prices on the market, the quality of products, and the availability of the products.

In Body: 4, it shows that the price is set by the demand and supply curve of the industry. An individual firm does not have enough capacity to change the market price so therefore price is continuous on the graph on the right.

  • The organizations all sell exactly indistinguishable products. Their goods are "homogeneous whereas it is not possible to distinguish between a good produced in one firm and a good stated in anther. You can find no brands and there is absolutely no marketing to attempt to make goods different from one another.
  • Firms are completely free to type in or leave the industry. Which means that the organizations already on the market do bit have the ability to stop new organizations from getting into it and are also free to leave the industry. Quite simply, there are no barriers to enter into or exit the marketplace.
  • All producers and consumers have a perfect understanding of the marketplace. The manufacturers are fully alert to market prices, costs on the market and how the entire market works. While the consumers are fully aware of the prices in the market, the product quality and the option of the products.
  • There are no externalities arising from production or intake which lie outside the market.

Price elasticity of demand (PED)

Price elasticity of demand is a measure of how much the quantity demanded of a product changes when there's a change in the price of the product. This can be the dependant on the data collected. Stalls on the market produce homogeneous products that are perfect substitutes for every other. This means that stalls are imagine to be price takers and face a properly elastic demand curve for his or her product (PED value of infinity). But also for the fish industry, this isn't the case.

This can be computed with the formula:

  • When Elasticity of Demand > 1, elastic
  • When Elasticity of Demand < 1, inelastic
  • When Elasticity of Demand = 1, unitary

There are factors which determine elasticity of Demand and included in these are:

  • Degree of necessity of the product
  • The availability of close substitutes (more substitutes means more flexible)
  • The proportion of income which something takes up
  • If the merchandise has any addictive properties

A questionnaire will be setup to provide a clearer picture on what consumer demand is like on fishes, please see Appendix for questionnaire. A complete number of 100 people were surveyed and some of the results were accumulated up and put into pie charts for analysing.

Long Run

With the accumulated data, I am in a position to show whether or not it is operating in the consumers' interest or their own profit maximizing gains. Over time, stalls in perfect competition will make normal profits. This is because, even if they are making short-run excessive gains or short-run loss, the industry will adjust with stalls entering or departing the industry until a standard income situation is come to.

Long run equilibrium in perfect competition:

Figure: 8

In Shape: 8, the organizations are making normal earnings in the long run. They are selling at price P, which is taken from the purchase price that is defined by the marketplace. The marginal cost (MC) is equal to the marginal revenue (MR) so are there at revenue maximisation when producing at number q. At that productivity level, we can easily see that the price is add up to the common cost (AC) then they are simply making normal earnings. We are able to conclude that the companies are behaving in the consumers' interest while also attaining normal income.

Assumptions of oligopoly

An oligopoly is a market structure dominated by way of a few companies and has a high level of market attentiveness, each which has some control overall market. However, oligopoly is often best described by the habit of firms acting within market somewhat than its market structure.

Price leadership tacit collusion

Collusive oligopoly is present when the organizations within an oligopolistic market collude to fee the same prices for their products, in effect operating as a monopoly, therefore split up any monopoly earnings which may be made.

One of the conducts within an oligopoly is price authority which is whenever a firm has a prominent position in the market and smaller firms with lower market shares follow the costing changes prompted by the dominating firm. In the event the dominating companies in a market are changing prices in the same way, it may take time for price changes to emerge which might cause the consumers react with a big change popular.

Firms who market to consumers that claim to be coordinating the lowest price in confirmed geographical area are engaged in tacit collusion. Tacit collusion occurs where organizations undertake actions that are likely to minimise a competitive response. Consumers will not be benefiting from tacit collusion since there is little to no competition in the market.

Explicit collusion under oligopoly

It is often seen that when the market is dominated by a few big firms, there will always be motivations for owner to reduce market uncertainty and take part in some form of collusive behavior to be able to control the marketplace. When this happens the existing businesses should form price fixing contracts or cartels, which can be aimed to maximise joint gains and become if the marketplace was a clean monopoly. However, this behavior is illegal in some countries including the United Kingdom, but there is little data to prove that a group of companies have deliberately chose to join together to be able to raise prices and control the marketplace.

Price fixing

As explained before, collusion is described by a potential to attain joint income maximization for the businesses within a market, which may avoid the issues of price and earnings instability. Price repairing represents an attempt by suppliers to regulate the resource and fix price at a rate close to the level we'd expect from a monopoly.

In order to fix the prices, suppliers on the market must be able to control the number supplied in the market. The syndication of the cartel result may be allocated with the use of an result quota system or some kind of negotiation. Even though the cartel all together is maximising earnings, individual organization's may see their outcome quota unlikely to be at their income maximising point.

Putting the seafood market within an oligopoly or perfect competition

Clearly the assumptions of natural perfect competition do not keep in markets including the fish market in this case. Some suppliers might want to exert some control on the quantity supplied and may exploit their monopoly electricity, but each individual stall in the market is so small that changes they make will scarcely have effects on the whole industry.

On the demand part, some consumers may have monopolistic power against suppliers because they constitute a high ratio of the total demand such as restaurants. A couple of practically always some barriers to the contestability of the marketplace and far from being homogeneous, there is absolutely no such thing as zero obstacles to entry. In reality, most market segments are filled up with heterogeneous products scheduled to product differentiation, however in this circumstance fishes tend to be to the "homogenous aspect.

Consumers nearly always have imperfect information and the consequences of persuasive marketing and advertising may have an effect on their preferences. For example, the stall keepers have the ability to ask for higher prices on foreigners than the local people because of the lack of information of the market price. In every industry, there will be asymmetric information where in fact the seller will know more about the grade of the product than the customer.

So whenever we put the fish market in an oligopoly or perfect competition, we are able to note that the marketplace is closer to perfect competition than an oligopoly. The seafood market meets the majority of the criteria of being a perfect competition such as having many companies on the market; all the companies are small with very little persuasive power how the marketplace operates and reselling homogenous products. However, there is no perfect information and there are many barriers to admittance.

The seafood market meets a few of the criteria to be an oligopoly such as entrance obstacles and interdependent decision making where in fact the firm will react to changes of its rivals. However, there is no product branding in the fish market and there are some price competition between businesses because they would like to make gains.

We will come fairly come near to perfect competition in the fish market however in certainty, there are nearly always obstacles to clean competition.

Conclusion/Evaluation

In conclusion, to the extent, the seafood market lies carefully to a perfect competition market. The seafood market has characteristics of both an oligopoly and a perfect competition. Nonetheless it is apparent that the seafood market is closer to a perfect competition due to the fact that the market has many organizations and all of them are small quite simply there is absolutely no individual company that can have a sizable impact on the marketplace. However, there are a few characteristics of the oligopoly such as responding to changes when competitors take action.

From my close observation and research, I can conclude that there is no non-price competition involved in the Shek Tong Tsui fish market. All firms are on the market as individuals which act on the consumers' interest.

Bibliography

Blink, Jocelyn and Ian Dorton. Economics Course Associate. Oxford University or college Press, 2007.

McConnel, Campbell R. and Stanley L. Brue. Microeconomics. NY: McGraw-Hill Inc. , 1996.

Fish Marketing Firm. 2006. 20 July 2008 <http://www. fmo. org. hk/>.

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