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Tanya and Tanmay Want to Buy: Sticky Sellers Seldom Bargain

CASELET, MANAGERIAL ECONOMICS
ET Cases, 2 pages

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Tanya and Tanmay Want to Buy: Sticky Sellers Seldom Bargain

 

Tanya and Tanmay (identical twins), were excited in their heart of hearts when their parents announced that the 17 year olds would be on their own for a fortnight as their parents availed the all-expenses paid mini vacation that they had won, courtesy their local supermarket. “Ah freedom!” was the unified response…

Day one and day two had the twins immersed in video games, movies, music, munchies, etc. On day three they considered that good nutrition was essential. Raised with good financial discipline and a fair amount of health consciousness, the twins decided to scout the local market for fruits. Tanmay’s favorite was apple while Tanya drooled at the very sight of mangoes. Growing up, each of the twins had accompanied their parents frequently to the market and knew the importance and joy of bargaining. Wanting to prove that they were not any lesser, they were mentally prepared to do the same.............

Teaching Note Preview

Tanya and Tanmay Want to Buy: Sticky Sellers Seldom Bargain

 

Synopsis

Buyers and Sellers are natural opponents given their antipodal interests – the former will buy more when the price falls and the latter is keen to sell more when the price is high. A market is the meeting point of these antipodal participants. Are buyers and sellers equally poised in the market or is there a power play in the market, which consequently distinguishes one market from another? Within the group of sellers itself, is there cut-throat rivalry or can it be possible that sellers are accommodative of mutual interests? The protagonists – Tanmay and Tanya, a pair of keenly observant teenage twins, are intrigued by the behavior of fruit sellers in the neighborhood market. It gets them thinking about universal parallels existing across the globe, such as accounting firms, oil exporting firms, media houses and others. Does cooperation among sellers have an economic rationale? In what forms is collusion present and operational? Does a single firm or a cartel basically set the pace for output and pricing in an Oligopoly market?

Expected Learning Outcomes

At the end of this case, the participants should be familiar with:

  • • Characteristics of an Oligopoly market
  • • The concept of Price rigidity and its impact on the market equilibrium
  • • The manner in which price – output decisions are made under Oligopoly

 

Prerequisite Conceptual Understanding

  • • Paul Samuelson and William Nordhaus, “Chapter 10: Oligopoly and Monopolistic Competition”, Economics, 19th Edition, McGraw-Hill Education, July 13th 2010

 

Position/Setting

Traditionally this caselet will follow discussions on Perfect Competition and Monopoly. However, given the style of the caselet it can be used in an introductory session for Perfect Competition and a simultaneous discussion of Perfect and Imperfect markets can be an unconventional approach to follow.

Assignment Questions

  • I. What is meant by an Imperfect Market? Discuss the features of imperfect markets by comparing and contrasting with perfect competition.
  • II. Explain Oligopoly and its characteristics.
  • III. Inferring from the case facts, assess the price rigidity of fruit sellers. Can a single seller increase his sales by offering a discounted price of `40 for a kilogram of mangoes? Illustrate the concept of kinked demand curve.
  • IV. ..................

 

Suggested Orchestration

Case Analysis and Discussion

This caselet’s discussion was carried out as per the Board Plan presented below. To ensure that the stated learning outcomes are effectively and satisfactorily achieved this caselet should be discussed under five broad segments.........

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Abstract


Highly suitable for discussing the defining features of an Oligopoly market, this caselet can be used to highlight the role of pricing power in an Oligopolistic market. This caselet enables an understanding of how Oligopoly markets function. Oligopoly markets are imperfect markets with a unique set of features that enable a small group of sellers to set the market price. Interdependence and group behavior are typical features that cause firms to closely cooperate and co-exist rather than compete and cause annihilation through price wars. Oligopoly markets are more common than what most people think, some even exist a few yards away from your home! Tanya and Tanmay, the teenage twins' puzzling experience with multiple fruit vendors leaves them with intriguing questions: Why are fruit vendors so sticky about their prices? Why are they colluding? Aren't they losing out on earning more profit?




Pedagogical Objectives


  • To clearly understand and appreciate the importance of market power, especially as a differentiating factor of market types

  • To identify Oligopoly markets in real life and to zero in on their characteristic price stickiness

  • To discuss the economic strategy of collusion in covert as well as overt forms

  • To discover the presence of a price leader in the Oligopoly market




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- Abstract
- Caselet
- Teaching Note (**ONLY for Academicians)
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