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ECON1025 Prices and Markets Assignment Sample

Assignment Brief

The assessment is worth 50 marks and will be delivered as a question sheet on Canvas exactly two weeks before the submission deadline. Your submission will receive an automatic Turnitin similarity score that should not exceed 25%. You should check this score using the tool on Canvas before submitting. Exceeding this limit raises the risk of your submission being subject to an academic integrity process. As per University regulations late assignments receive a 10% penalty per day until the mark reaches zero. Marks will be given according to the rubrics on Canvas. You must attach a completed coversheet with your submission (template appended below). For the formatting requirements follow the advice given for assessment task 2 above.

Your submission should be a word-processed document not exceeding 2000 words. Any diagrams that you wish to use can be inserted into this document in any way you like, i.e. created in the word-processing software itself, or inserted as a photograph of a pencil drawing or from another software.

There is no discretionary margin above this limit. There is no minimum but you are advised to use all the words for assignment help allowed to allow for a more developed and detailed analysis.

Answer any FOUR of the following questions. Each question is worth a total of 12.5 marks. If more than four questions are answered, marks will be awarded for the first four answers only.


High-performance cars (HPCs) are automobiles with engines that generate great power relative to their weight. They boast high acceleration, speed, cornering and breaking performance. But they obviously come with a very high price tag. Some people even buy them to publicly display their wealth. The Singapore economy has grown rapidly between the 1960s and 2018 with rising incomes across the island. Examine the likely consequences of rising incomes on the Singapore HPC market and one or two related markets.


The speed limit on Singapore roads, even expressways, never exceeds 90 kmh, much less than the top speed of HPCs. But there is a road racing culture where individuals perform stunts and races on public roads, far exceeding speed limits. What, if anything should government do about the HPC market? Should such cars be banned outright? What would be the problems with such interventions?


The car industry is characterized by heavy research and development activity. This activity has a high fixed cost and can only be undertaken by large firms with significant monopoly power. Sometimes the innovations of the car industry spill over into other industries. There is also a great deal of product differentiation, with certain brands enjoying reputation and loyalty.
What are the likely effects of these aspects of the industry on the market structure for HPCs? Examine this industry using the theory and models of industry structure. Should government be worried about any aspect of how an industry with this market structure will perform?


BMW is one of the world’s best known HPC manufacturers. Developing new cars is a costly, uncertain and complex process. This company would need to consider which parts of the vertical chain to outsource and which to conduct in-house. Using the theory of the optimal boundary of the firm, discuss BMW’s make-or-buy decision for developing and producing a HPC. What stages of the vertical chain should BMW consider conducting in-house, and which should be outsourced? Provide reasons for your findings.


Consider the following hypothetical case. Only BMW and a competitor, Mazda, are considering launching a new, niche HPC in the Asian market. The issue is what price to charge. Both new cars are very similar in performance and production cost. Analyze the interaction between the two firms using game theory. Present a payoff matrix to model the situation and analyze it for Nash equilibrium. What can either of these firms do to make their best, most-preferred outcome more likely?




Question 1: likely consequences of rising incomes on the Singapore HPC market

High performance cars are considered a sign of wealth as rich people often showcase their status and flaunt their economic well-being. High prices of high performance cars imply that only a limited number of people are capable of buying those products in the market. High performance cars are considered to be a luxury commodity in the market as only a few people can afford to buy these products. However, rising economy of Singapore encourages its economic stakeholders to accumulate substantial wealth over the past few decades. Rapid growth from 1960 to 2018 has helped many people to change their fortune as they became wealthy during these periods. This has generated demand for high performance cars in the Singapore market as the capabilities of people buying similar kinds of cars has over this period. As per the studies done by Kern, Dossow & von Roon (2020), people tend to buy more expensive products with a rise in their income. Similar aspects could be observed in the Singapore market as demand for high performance cars would like to increase.

High performance cars apart from being a symbol of wealth possess high acceleration, speed, cornering along with breaking performance. The income elasticity of the high performance cars is positive as rising income enhances the affordability of those for the consumers. Rising market demand would cause the dealers to supply a higher volume in the Singapore market that would raise the overall supply of high performance cars. The market for high performance cars will see a boom as consistent growth of the Singapore market has established itself with a strong economy. The rapid growth of the Singapore economy has enabled the market players to infuse a huge amount of money that encouraged them to buy high performance cars in the market. According to the study of Ji et al. (2021), rising demand for any commodity would increase the price of that product in making it more experience. However, market equilibrium for high performance cars in Singapore would shift towards the right with further increases in the price in the market.

The price increase could be explained through comparative static models that compare different economic outcomes that can be observed after changes in exogenous parameters. In this scenario, demand for high performance cars is changed in the market through changes in income. Furthermore, the demand factor influences the price metric to change which raises the price of high performance cars in this case. The overall price of HPC will rise in the Singapore market although the growth of the economy would stimulate the demand in the market. This would raise the overall import items in the Singapore economy as car manufacturing companies would raise the supply in the market. As per the view of Sadiq et al. (2021), a rise in demand in a specific market often increases the demand in the related markets. Related markets such as customised parts or car paint would observe a growth in the market as the products are complementary.


Question 2: Government intervention in the HPC market and issues developed through intervention

High performance cars possess a high speed which is much higher than the restricted speed in the Singapore economy. Speed limit curbing the speed of vehicles does not allow the riders to enjoy the top speed of high speed cars as there remains racing culture among people. Individuals performing stunts or having a race on the public road could lead to fatal damages that may cause government intervention in the HPC market. As per the studies done by Basu & Ferreira (2020), government intervention allows a market to run properly as well helps in people getting benefits from the market. Restriction on sales of high performance cars could lower the chances of accidents on the road that would sufficiently help the people of that economy. Imposition on sale of high performance cars would discourage the wealthy population of the nation. The Government of Singapore further raised the speed limit in a specific time period along with special race tracks that would allow the cars to remain within a certain area.

High performance cars could be banned by the government of Singapore that would depress the HPC market. On the other hand, the banning of high performance cars would lead to the emergence of the black market in the country. According to the study of Adler, Peer & Sinozic (2019), market imposition of government often restricts the natural market composition that influences the shady market to grow. Furthermore, people of Singapore could buy high performance cars in different national markets and that could be imported into Singapore due to imposed market restrictions. These could lead to loss of taxes and other financial losses for the Singapore government arising due to government intervention in the market. However, banning cars would never solve the problems rather it would create further complications.

The emergence of a shady market is not helpful for the growth of the economy as the government does not get any financial benefits for transactions. The government will have no clue about the number of products sold in the market. As per the view of Bucsky (2018), market governance is necessary to have estimated about any specific market and transaction happening in that market. Furthermore, the government will be unaware of the shady deals that would occur in the parallel market. The parallel market assists in the growth and development of corruption that would cause a bigger issue for the government.

Market equilibrium in the high performance cars market would disrupt through the imposition of the Singapore government. It may lead to market failure as tough restrictions by the government could dry off the entire market. According to the study of Basu & Ferreira (2020), welfare loss happens due to the imposition of market restrictions as both producers and consumers waste their resources. High tax imposition could lower the sales of high performance cars that could help the government in lowering the number of cars in the market. The Singapore government could impose a higher import duty that would provide a similar effect as well.

Question 3: Market structure for HPC industry and governments worry on market performance

The global automobile industry is not that highly competitive as it is filled with various market producers. However, the market structure in the high performance car industry is oligopolistic markets as only a handful of market players dominate the industry. Target market of the high performance car industry always remained different as compared to the automobile industry. As per the studies done by Yin & Hamilton (2018), research and development is the crucial component behind the growth of high performance cars that can be managed through few market suppliers. Producers in the market are unable to carry the heavy research and developmental activities in the market in a regular manner. These aspects have implicated a few producers in the market who are the dominant force in the market.

The market producers have different brand valuations as they have some degrees of product differentiation. A certain amount of product differentiation causes a huge advantage in the market that allows some manufacturers to have a significant market advantage. According to the study of Minh (2020), brand valuation is another component that influences the market position of different car manufacturers. Furthermore, the brand valuation of a company comes through sufficient brand reputation that is acquired through proper servicing to consumers and efficient customer satisfaction. The car manufacturing companies with greater brand reputation allow a greater competitive advantage in the market that helps them in being a dominant force in the market.

Loyalty of the customers plays a crucial role in these aspects as car manufacturers with a higher brand reputation have a greater loyal customer base. As per the view of Horn et al. (2019), the customer retention rate of manufacturing companies depends on the loyal customer base that provides sufficient confidence to the companies in case launching new products in the market. Product differentiation allows car producers to develop different types of products in the market. High performance car industry possesses few manufacturers who have focused on the heavy research and development of their production system in a heavy manner. The car manufacturing companies possess a high fixed cost that provides a certain level of market entry barrier as very few producers are capable of sustaining the cost. This market entry barrier encourages the existing producers in the market to carry on the production activities as profitability remains higher.

The government must not worry about the existing market structure in the high performance car industry as few dominant producers are very competitive among themselves. However, the Singapore government must ensure that any single firm does not contain significant monopoly power in the market. According to the study of Horn et al. (2019), monopoly power could further disrupt the market as only one firm is capable of supplying products in the market which would result in loss of welfare in the market. Consumers could be exploited through the emergence of monopoly in the high performance car industry as a sole producer would satisfy the supply of the entire market. The government must ensure the car manufacturers do not form a cartel that would represent a monopoly manufacturing company itself.

Question 5: Market interaction between BMW and Mazda using Game theory

BMW and Mazda are two companies operating in the high performance car industry in the Asian market. Cars of both of the companies having similar features and providing the same performance lead to a case of no product differentiation in this scenario. Production cost of both the cars being the same implies the cost for these two vehicles will be identical. In this scenario, the application of game theory would be most useful helping to identify the market equilibrium. As per the studies done by Sun & Sun (2018), the payoff matrix model provides a visual representation of the best possible outcomes of strategic decisions for two different players.

The playoff model matrix for BMW and Mazda has been provided below,

Table 1: payoff Matrix Model for BMW and Mazda
(Source: MS Word)

From the above matrix model it can be observed that the pricing of BMW and Mazda cars could be of two different levels which are 100000$, and 200000$. Furthermore, within the matrix, the market share for each of the cars has been provided based on the level of price for each of the high performance car manufacturing companies. It can be observed from the above table that the prices of both of the cars would lead to equal market share in the luxury car industry. Furthermore, one of the cars having different prices would lead to complete market acquisition for one car manufacturing company. Both of the cars having same production cost and identical products would lead to identical product pricing in the market. Cars having different prices in the market would lead to greater market accumulation by the other company. The company with a higher pricing policy would lose a heavy market share as consumers will shift to that other brand with lower cost (Ajay et al. 2019).
In this scenario, BMW will consider market pricing of 100000 USD as the company is beneficial irrespective of policy adoption of Mazda. BMW will accumulate 50 percent and 100 percent of the market while adopting the price of 100000$ which is higher as compared to the other pricing strategy of the company. Similarly, from the playoff matrix, it can be observed that Mazda having products pricing 100000 USD could lead to higher market acquisition as compared to other pricing strategies. According to the study of Koryagin (2018), Nash equilibrium from a payoff matrix model leads to conjugal outcomes that satisfy both of the players. Mazda can acquire a higher market share in the high performance industry irrespective of the pricing strategy of BMW with a market price of 100000 USD. Hence, both the car manufacturer company BMW and Mazda will adopt a price of 100000$ and the Nash equilibrium is (50, 50) in this case.


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Ajay, M., Kannan, S., Narayan, P. P., & Kumar, R. D. S. (2019). A Glance Through History of Automobile Industry and Current Market Study of Some of the Legendry Models in India. In Advances in Manufacturing Technology (pp. 433-441). Springer, Singapore.https://www.researchgate.net/profile/Tamilselvam-Nallusamy/publication/332488514_Mechanical_Characterization_of_Glass_Fiber-Strengthened_Balsa-Depron_Composite/links/5f97e8c292851c14bceac820/Mechanical-Characterization-of-Glass-Fiber-Strengthened-Balsa-Depron-Composite.pdf#page=426

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Bucsky, P. (2018). Autonomous vehicles and freight traffic: towards better efficiency of road, rail or urban logistics? Urban Development Issues, 58(1), 41-52. https://sciendo.com/pdf/10.2478/udi-2018-0022

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