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<b>GROUP ASSIGNMENT ECO111_MKT1602_SU2021</b>

<b>REPORT </b>

FIRMS IN COMPETITIVE MARKETS

<b>Lecture: Nguyễn Chính QuangSubject: MicroeconomicsGroup’s Member:</b>

1. Trần Ngọc Hiếu - SS1602502. Ngô Thị Thu Trang - SS1605403. Phạm Trịnh Đăng Khoa - SS1603024. Âu Gia Huy - SS1604825. Phạm Ngọc Thạch - SS1605806. Diệp Thái Phong - SS160641

<i>Ho Chi Minh, July 9th, 2021</i>

<b>Content: </b>

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<b>1. Perfect competitive market characteristic………...….... 2</b>

<b>2. Hotel Market………...……... 9</b>

<b>3. Video Streaming Market………..…….. 15</b>

<b>Reference</b>………... <b>20</b>

<b>A. Introduction:</b>

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- This market has a large number of buyers and vendors.

- All producers and consumers set prices for production costs. They have no control over the market.

- If a company tries to raise its prices, customers will instead purchase from a competitor with a lower price.

- All of the products are the same.

- Producers have unrestricted access to and departure from the market.

<b>2. Firm Revenues</b>

The revenue of a company functioning in a perfectly competitive market is computed as follows:

Total Revenue = Price * Quantity

AR (Average Revenue) = Total Revenue / Quantity

MR (Marginal Revenue) = Change in Total Revenue / Change in Quantity

<b>3. Profit Maximization</b>

P = AR = MR

If MR > MC - the firm should increase outputIf MC > MR - firm should decrease output

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<b>4. Shutdown case and Exit case+ In the short run:</b>

A firm will shut down production if the entire income from the sale of items produced is less than the variable production costs, price less than average variablecost.

<b>+ In the long run</b>

A firm will depart if its total income from the sale of items produced is less than its entire costs of production or if the price is less than the average total cost.

<b>5. Sunk cost</b>

- Is a pre-existing cost.- It cannot be regained.

- When making future business decisions, sunk costs are usually not taken into account.

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market such as:

<b>1. Many sellers and buyers. (Ex: Vinamilk, TH True Milk, Kun..)2. Sell identical products. </b>

<b>3. Price determines supply and demand.</b>

The milk firms do not set prices. It depends on the quantity of demand and supply of milk.

<b>4. Freely enter or exit the market when the business does not go on as expected.</b>

Because this is a competitive market, it is easy to enter the market. If the business is not favorable, it will exit the market.

Milk Market Overview:

● According to Euromonitor: The full scale of the dairy industry reached 135,000 billion VND in 2020. Domestic dairy product demand is less impacted by COVID-19, falling only -6.1% in value compared to a drop of -7.5% for FMCG consumption in the first nine months of 2020 (Nielsen) (Tri Túc, 2021)● Milk consumption accounts for 11.9% of FMCG consumption in Vietnam,

unchanged from 2019. Residents increased their use of fresh milk and yogurt to boost immunity during the epidemic, while demand affected by schools across the country was closed for nearly three months. (Tri Túc, 2021)

● Drinking milk has the highest revenue share, with approximately 47.6%, and Vinamilk has the highest market share in this sector.

Cơ cấu doanh thu thị trường sữa của Việt Nam - nguồn: Euromonitor.

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Case 1: The price of milk decreases:

(Trần Khánh, 2020)

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world milk price has not fluctuated strongly, even decreased in the context of the complicated development of the Covid-19 epidemic. According to Danviet, on March 22th,2020, Milk prices decreased 25% from 37.000 VND/3 boxes of milk to 27.900 VND. Vinamilk freshmilk box reduced from 32,800 VND/lot of 4 boxes to 29,000 VND

This is a factor that helps stabilize input material prices for domestic dairy enterprises and helps domestic milk prices to remain stable in the coming time. Along with that, domestic fresh milk production in the first two months of the year also increased, helping to stabilize milk prices in the market.

. This affected the Supply- Demand curve. - Supply curve shifted to the right

- The intersection changed from the initial equilibrium A(P, Q) to B(P1, Q1). - Decreased equilibrium price

- Increased equilibrium quantity

<b>In short-run: </b>

● Sellers will shut down if the price is lower than the average variable cost.● The firm still has to pay fixed costs.

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<b>In long run:</b>

● Sellers will exit the market if the average revenue is lower than the Average Total Cost.

● The firm does not have to pay any costs.

Case 2: The price of milk increases:

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According to Tuoitre in 2014, all milk product’s prices increased 5-10%. This is because the material prices of milk like butter or milk powder rose by about 30-40% so that the firms need to raise the product prices. Specifically, the main raw material of skimmed flour has increased from 3,700 USD to more than 4,000 USD/ton. Based on February 2014, the price of skimmed milk powder has increased to more than 5,000 USD/ton. The price of milk powder and butter oil has increased by 30-57% over the sameperiod in 2013. In this case, the increase in input prices lead to the increase in prices. According to many agents, Vinamilk's milk price has been increasing since Tet holiday, many liquid milk products, powdered milk, yogurt all increased by 5-7% compared to before. The best-selling products such as Dielac Alpha increased from 210,000 VND to 235,000-238,000 VND/box. In addition, yogurt, canned milk of all kinds also increase by200-1,000 VND/product depending on the type… With this increase, many shop owners said it was difficult to sell goods.

In addition, at the end of 2013, the company also increased the purchasing price for farmers by 22%.

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- The change of equilibrium from initial equilibrium to the new one- Increased price equilibrium.

- Decreased quantity equilibrium.

Whether the price of milk increases or not, the firms need to compare between MCand MR to know how much quantity that needs to be produced to reach the profit maximization or the firm’s loss minimization. If the quantity reaches at Qmax which is the intersection of Price curve and Marginal Cost Curve, so that the company can maximize the profit while it is in a positive situation or minimize waste while it is in a negative situation.

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- Increased price equilibrium.- Decreased quantity equilibrium.

– If MR > MC - the firm should increase output– If MC > MR - the firm should decrease output– If MR = MC - profit-maximizing level of output

Vietnam's tourism and hotel market is always the top concern of domestic and foreign investors. The demand for travel and entertainment of Vietnamese people promotes

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etc., and a lot of customer-oriented services. Travel (multiple sellers and many buyers). All hotels here are rented and rested by tourists (identical product). However because of the covid epidemic, the hotel market has had negative changes.

(The graph shows the number of domestic and foreign tourists) (1)

Reference: VNAT ( Hotel room price chart ) (2)

Reference: Bộ phận nghiên cứu tư vấn SavillsHaving an overview through chart 1 and chart 2 we can see the impact of the covid pandemic on the number of tourists using hotel services, and the price of this market has decreased significantly.

After a long time since 2015, the demand for domestic and foreign tourism has

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tourism market. Nevertheless, because of the impact of covid, the price started going down. Then, the supply curve shifted to the right, the equilibrium of quantity increased and then the equilibrium of price decreased.

(H. Tuấn, 2021)

Because of the decrease in the price of the hotel and tourism market in VietNam:+In short–run: If the price is more than the average variable cost, the firms will also leasehotels. On the other hand, if the price is lower than the average variable cost, the firms will shut down.

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hotels. If the price is less than the average total cost, the firms will exit the market.

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average total costs. When the P score is higher than the ATC point, the company will make a profit, but if the ATC score is higher than the P point, the company will lose.

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(Statista,2018)

Its popularity has grown in many ways, especially with the deployment of known video streaming services, such as YouTube, Netflix, FPT Play, Amazon, etc. Video streaming now accounts for a large part of total internet traffic. Therefore, the transmission mechanism used by the video server will affect the quality of the video presented to the client and the general traffic on the network.In 2020, it was expected to generate close to US $ 26 billion in revenue, with an annual growth rate of 4.1%. In households that use OTT (removable media services), 19% is spent on TV broadcasting (JAIME LEE, 2020).

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well-competitive market, such as:

1. Nowadays, watching video streaming is very popular. People (Buyers) always want to watch movies on these platforms, and the video streaming market (Sellers)offers them movies on a paid viewing basis monthly or yearly membership. It is called the Subscription VOD model (SVOD).

<b> => Many buyers and sellers.</b>

2. By subscribing to a monthly viewing service, video streaming firms give viewers unlimited access to various TV shows and movie content.

<b> => Identical services.</b>

3. Easy to join and easy for them to exit when business is not favorable

<b> => Freely enter or exit the market</b>

4. This service released by different firms will have different prices. Buyers have their permission to compare each firm’s service prices to buy an account at an affordable price.

<b> => Sellers and buyers are price takers.</b>

<b>Case Study: The demand increased</b>

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Although the Covid-19 impacted many industries globally, subscriptions to streaming video services grew by 26% in 2020 compared to 2019, with revenue reaching over 1 billion dollars.

Because the demand for online movie watching services increased- The demand curve shifted to the right from D1 to D2.- Demand Equilibrium increased from Q1 shifted to Q2.

- Supply equilibrium did not change because the price of money did not change even though the quantity demanded increased.

- Firm revenue increased.

<b>What will happen to this market in the long run?</b>

+ First, it will enter the market when: Total revenue > total costs

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The profits in the long will be attractive to firms in similar industries and will cause entry.+Total cost of Netflix is 5000$ to 50,000$ per streaming video, and the average revenueper user is $66.29 (price) (Bansal, 2019)

+ To make profit the Total revenue (Quantity x Price) > total costs, so Netflix must sellmore than 80 accounts per month in order to enter the market, or it will exit

<b>In the short run?</b>

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to gain larger market shares.

+ If the total revenue of the company is less than the variable costs, the company should be closed down: TR < VC or P < AVC.

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<i> VIỆT. (2020) “Giá sữa giảm, phụ huynh vẫn mua tích trữ để hạn chế đi lại mùa Covid-19” [Online] March 22th,2021. Available from: </i>

[Accessed from: July 5th, 2021]

TUOI TRE. (2014) “Chóng mặt với giá sữa tăng” [Online] February 16th, 2014 Availablefrom:

[Accessed from: July 5th,2021]2. Hotel Market

<i>KINHDOANHPLUS (2019) “Sơ lược thị trường Khách Sạn Việt Nam” [Online] </i>

November 8th,2019. Available from: san-viet-nam-d295620/ [Accessed from: July 6th,2021]

(2019) “Gía khách sạn tăng nhẹ” [Online] January 16th,Available from:

[Accessed from: July 6th,2021]

SAVILLS VIET NAM. (2020) <i> “Báo cáo thị trường Q1” </i>[Online] April 24th, Available from: [Accessed from: July 6th, 2021]</i>

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<i>trường khách sạn Việt Nam” [Online] Available from: </i>research/vietnam-research/quarterly-market-reports---vietnamese/vietnam-hotel-q12020-mediarelease-vn.pdf?

[Accessed from: July 6th, 2021]

<i>H.Tuan (TTXVN/Vietnam+). (2021) “COVID-19 tiếp tục "giáng đòn" vào kỳ vọng phục hồi của khách sạn” [Online] February 15th, 2021. Available from: </i>

khach-san/695101.vnp [Accessed from: July 6th, 2021]<i> </i>

Video Streaming

STATISTA (2021)<i>. “Video Streaming (SVoD)” [Online] </i>Available from:

Video Streaming (SVoD) - Worldwide | Statista Market Forecast. [Accessed from: July 7th, 2021]

STATISTA (2018)<i>. “Video Streaming (SVoD)” [Online] </i>Available from:

Video Streaming (SVoD) - Worldwide | Statista Market Forecast [Accessed from: July 7th, 2021]

JAIME LEE. (2020) “Streaming Services: Breaking Into a Competitive Market” [Online]December 15th. Available from:

Streaming Services: Breaking Into a Competitive Market | AdRoll Blog[Accessed from: July 6th, 2021]

HAI NAM (2021)<i>. “Dịch vụ phát trực tuyến Disney+, Netflix... “bội thu” nhờ 19” [Online] March 24th. Available from:</i>

Covid-Dịch vụ phát trực tuyến Disney+, Netflix... “bội thu” nhờ Covid-19 | VOV.VN [Accessedfrom: July 6th, 2021]

<i>MORIOH. (2020) “Social Network for Programmers and Developers” [Online] </i>

Available from: Social Network for Programmers and Developers (morioh.com)

[Accessed from: July 9th, 2021]

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