Economics Case Study

The current inflation rate (annual increase in price level) for goods sold in supermarkets (“dailies” or “everyday goods” like food etc.) is 7.9 per cent, i.e. the supermarkets have to pay 7.9 per cent higher prices upstream to the producers of the goods. On average, the price increase consists of:

• 6 per cent points increase in energy prices because of the worldwide energy price increase,
• 6 per cent points increase because of ongoing frictions in the supply chains as a consequence of the pandemic lock downs and distortions,
• 5 per cent points increase because of quality / technological improvements of the goods (including trends for more biological and more regional supply),
• 4 per cent points increase because of increasing wage costs upstream,
• 2 per cent points decrease because of decreasing profit margins upstream.

The market for supermarkets has the following market structure:

• NOKEG AG: 40 per cent market share,
• UltraBuy AG: 30 per cent market share,
• Westland Shopping AG: 15 per cent market share.
• AKEDE AG: 10 per cent market share – small regional supermarket providers: altogether 5 per cent market share.

The supermarket companies perform the following reaction to the upstream price increase:

• NOKEG increases all its prices by 8 per cent.
• UltraBuy increases all its prices by 5 per cent.
• Westland increases its prices by 7.9 per cent but offers a 2-per-cent price discount if consumers buy more than 10 items.
• AKEDE increases all its prices by 8 per cent but offers a 2-per-cent discount for unemployed people.
• The small regional suppliers perform various strategies.

Assignment 1 (20 points)

Discuss the pricing strategies of NOKEG, UltraBuy, Westland, and AKEDE. Are they pro- or anticompetitive?

Assignment 2 (5 points)

Westland advertises its price increase by telling the consumers that they raise prices to improve the protection of the environment and to promote regional producers. Thus, Westland consumers can shop with a clear conscience. Is this advertising strategy pro- or anticompetitive?

 Assignment 3 (5 points)

NOKEG successfully lobbies the government to grant their consumers a 5 per cent-discount for their shopping with NOKEG, called “energy payback money” (EPM). This discount is financed by the government. The official reason is to compensate for the energy price-related increase. Is this measure pro- or anticompetitive?

Assignment 4 (20 points)

Discuss the following statement: If a company acquires a monopoly position because of a breakthrough innovation, then the monopoly rents are the deserved reward for its effort.