TOPIC : Price discrimination in Technology Transportation Service: Grab Vs GoViet in Vietnam A INTRODUCTION B LITERATURE REVIEW C CRITICAL ANALYSIS AND PROBLEM SOLVING Monopoly market Overall market in the past: talking about how Grab has their own power to control the price in the market in the past e.g pushing prices up in rain and rushhours when consumer demand is less elastic => monopolistic privilege New entrant to the market Go-Viet is new in the market – then they have relatively few barriers to entry (low overheads, service provider/app not the transportation company i.e don’t need to provide employee benefits, same strategies as Uber’s) Although Grab has economy of scale, it’s more efficient (lower fixed costs and more driver availability) for Grab to maximise their customer services Substitution effect Go-Viet’s price strategy when entering the market: Go-Viet lower their price to attract Grab’s customers (these two service providers are substitutes) This causes the Grab demand curve shift leftward and pushes the price down, the quantity of grab customers also falls First mover advantage Therefore, Grab responds with a new strategy to lower their price, to match’s GoViet The difficulty with this is the asymmetric information - Grab might lower its price in anticipation of a price-cut/ promotion offer by Go-Viet and vice versa Social surplus and Monopolistic Competition As Grab and Go-Viet compete, this causes a race to the bottom and erodes their economic profit and maximizing consumer welfare If this market is competitive, MR=MC D RECOMMENDATION Future direction Grab and GoViet cooperate (form a cartel) in the market to fix the price and maximise their profit (producer surplus) i.e duopoly market OR Grab buy the fledgling competitor and absorb Go-Viet, as they did absorb Uber in Vietnam market or the case study of Instagram being absorbed by Facebook -> monopoly market Recommendation: It’s important to consider the negative social effects of a monopoly or duopoly – they have the pricing power and social welfare (surplus) comes second to profit (producer surplus) We therefore recommend that government interfere in the market (because of the distortion) by imposing a tax Currently, Grab and Go-Viet are treated as a tech company …the alternative is that govt policy should classify grab and go-Viet as transportation (as with Uber in Europe) -> make higher tax This should be used to further consumer welfare in the country Furthermore, by classifying the company as transport -> drivers recognized and protected employees However, this tax would -> increase in AVC and if this falls below MR the firms would be pushed out of the market, because their economic profit is diminished, and they no longer have an incentive to participate Therefore, a delicate balance needs to be maintained E BIBLIOGRAPHY References used in the assignment ... recognized and protected employees However, this tax would -> increase in AVC and if this falls below MR the firms would be pushed out of the market, because their economic profit is diminished, and. .. distortion) by imposing a tax Currently, Grab and Go-Viet are treated as a tech company …the alternative is that govt policy should classify grab and go-Viet as transportation (as with Uber in... to consider the negative social effects of a monopoly or duopoly – they have the pricing power and social welfare (surplus) comes second to profit (producer surplus) We therefore recommend that