Micro Economics Class
Project #3
Kim Yun Seok, Seong Woo Ram
Cho Ha Eun, Lee Han Sae
Chapter 13 - The Cost of Production
Economies of scale
Shinsegae expands in Lotte’s home turf of Busan
No. 2 retailer helps Busan rise as Hong Kong’s rival in shopping
Published : 2013-03-03 20:17
Updated : 2013-03-04 09:31
BUSAN ― When Shinsegae
made a bid to purchase a 75,742-squaremeter site from Busan City in 2004, its
biggest rival Lotte was caught off guard. It
never imagined Shinsegae would invest so
much to build the world’s largest
department store on Lotte’s home turf and
turn the wasteland into one of the hottest
shopping havens in Asia. In addition to
Shinsegae Centum City, a must-visit
attraction for tourists, Shinsegae Group is
building a compelling shopping network in Busan. It opened a high-end supermarket, SSG, in Marine City,
entered the duty-free shopping business by acquiring the nation’s second-largest duty-free shop from Paradise
Group last year, and is building its third premium outlet in Kijang, about half an hour’s drive northeast from the
city center. Busan’s top hotel Westin Chosun is also a member of Shinsegae Group. Four years after opening the
Centum City department store, Shinsegae said last week it will develop about half of the remaining site into an
entertainment facility housing Korea’s first Madame Tussauds wax museum and KidZania entertainment center
for children by 2016. The retail giant plans to invest about 300 billion won ($277,000) in the new facility, and
develop the remaining 16,512-square-meter site over the next five years to cap off its “urban entertainment
center” project. Shinsegae Centum City became a key landmark of Busan from the outset, with its supersized
spa facility, ice rink, golf range, multiplex, bookstore, stylish spaces for shopping, and cultural events, attracting
some 16 million visitors in its opening year. Its sales continued to post double-digit growth every year, raking in
824 billion won in 2012.
Shinsegae is also expected to open more SSG supermarkets to achieve economies of scale, although it
has no finalized plans yet. The ones in Busan and Seoul’s Cheongdam-dong are seeing sales increase but are still
not profitable.
Article: http://khnews.kheraldm.com/view.php?ud=20130303000161&md=20130306004501_AP
According to the article, Shinsegae group is expanding their business in Busan.
Busan was a Lotte group’s home business place. However, Shinsegae group invested a lot of
their money on Busan and slowly took initiative on Busan. In addition, Shinsegae is making a
network of hotels, department stores, and entertainment facilities.
From this fact, we can notice that Shinsegae is aiming at the ‘Economies of scale’.
‘Economies of scale’ is the property whereby long-run average total cost falls as the quantity
of output increases, according to Mankiw’s Principles of Economics. At early time, when
Shinsegae began to invest on Busan, they might have to pay relatively large cost, because
they didn’t have many facilities in Busan. However, as they invested more and more on
Busan business, they might have relatively lower cost than before, because they became more
efficient to expand their business. Therefore, we can say that Shinsegae tried to achieve
economies of scale until today.
Even in present days, Shinsegae tries to achieve economies of scale. They are
expanding their SSM (Super Supermarket) to get economies of scale. As they build more and
more SSMs on Busan, the distribution structure gets simplified, so Shinsegae can enjoy
lowered cost and higher profit. Therefore, Shinsegae is expanding their SSM business in
Busan to achieve economies of scale. However, the side effects of SSMs are still remaining,
such as damaging small businesses’ commercial supremacy.
Chapter 15 - Monopoly
The Cause and Effect about Losses of Monopolistic Public Enterprise “Korail”
In these days, there is one news article that public railroad corporation “Korail” is
now going on privatization in only KTX part. The cause of privatization is its constant losses.
The firm “Korail” operates on KTX and common railroad “Mugunghwa”, “Saemaeul”. KTX
always creates much benefit for “Korail”, but the common railroad “Mugunghwa”,
“Saemaeul” has bigger losses than benefit from KTX. So its profit is negative. The article
shows financial situation of “Korail” about losses.
“Despite of Increased Profit of KTX, the firm “Korail”
represented that it still has undergone operating loss over than 1
trillion before seven years” “The government searches business
improvement ways of its losses like the reduction of personnel
expenses” “Ministry of Land, Transport and Maritime Affairs
analyzed 2011 management performance that “Korail” submitted
last December. As the result, total real losses are 830.3 billion”
“A person concerned said that in common railroad section,
passenger part recorded losses 644.3 billion, freight part
recorded losses 506.2 billion and a wide area railroad part
recorded losses 148.5 billion, and he also said that the main
cause of losses is increase of labor costs”
Article: http://view.asiae.co.kr/news/view.htm?idxno=2013011510424533976&nvr=Y
Picture: http://blog.naver.com/dy06?Redirect=Log&logNo=150161499016
http://view.as iae.co.kr/news /view.htm?i dxno=2013 011510424533 976&nvr =Y
Likewise, “Korail” suffer tremendous losses. And other cause of losses is loose
business operation. For example, the firm keeps running the common railroad when
passengers are only few, in other words, when marginal cost surpass marginal revenue, so the
firm gets losses. But, “Korail” is public enterprise. So its losses is not directly connected with
its parties, but with tax of the national people. After all, the firm has not the incentive to
operate the business efficiently. It is general harmful effect of public enterprise. To fix these
problems, the government try to introduce privatization to KTX part of this firm and try to
induce other firm to enter the KTX market. But, the party of incumbent firm objected to the
government’s proposition. First, The KTX section of “Korail” is the only benefit route for it.
Second the employees in this firm will be in danger of firing for efficient operation. If the
firm goes on privatization, the firm tries to maximize profit and minimize its losses. Then, the
firm will execute layoff to less unnecessary expenditure. I doubt that the privatization and
allowance for entering KTX market is always good for social welfare. Because if many other
firm enter this market, the tremendous fixed cost will be burden to them. They maybe get
losses rather than profit.
Chapter16 - Monopolistic Competition
In what type of market does the iPod operate in?
Apple’s iPod was launched in 2001 and in that time Apple has sold
more than 180 million units. Quarterly sales worldwide continue to nudge
between 9 and 10 million. Despite the entry of Microsoft’s Zune digital media
player (launched in 2006, manufactured by Japan’s Toshiba and pictured below)
and existing players produced by the likes of Sony, Creative and Samsung, the
Apple iPod continues to enjoy a market share of more than eighty per cent. In
this sense, the iPod can be said to have a monopoly position in the market and
well established market dominance. Indeed there are those who claim that
Apple has built up a vertical monopoly in this market based around the
success of the iPod, iPod Shuffle, iTouch, iPod Nano with Apples iTunes
software, the iTunes Music Store platform, and the FairPlay digital rights
management system (DRM). Until recently, DRM acted as a barrier to entry
in the market because it prevented consumers who had purchased songs through iTunes from using them on
digital players other than Apple’s own products.
Another view is that the different versions of the iPod compete within an oligopoly. An oligopoly is a
market dominated by a few producers, each of which has some control over the market. However, oligopoly is
best defined by the conduct (or behaviour) of firms within a market rather than its market structure. In an
oligopoly we frequently see many of these aspects:
1/ Periods of intense price competition between rival brands
2/ Heavy investment in research and development to speed up product and process innovation
3/ An emphasis on non-price competition as a way of gaining and protecting market share
4/ The existence of entry and exit barriers which limit the number of businesses that can operate profitably in
the market
Article: http://tutor2u.net/blog/index.php/economics/comments/qa-in-what-type-of-market-does-the-ipodoperate-in/
,
According to this source there is a controversy over whether iPods belong to
monopoly market or not. Those people who say that it is not in the monopoly market
categorized iPods as oligopoly market.
The arguments in favor of categorizing iPods as monopoly:

It dominates with the market share of more than 80 percent.

Apple built up ‘vertical monopoly’ by introducing generations of iPods.

DRM had appealed music industries to sell their products through iTunes, which
strengthened this ‘vertical monopoly.’
The following points are arguments in favor of categorizing iPods as oligopoly market:

There are intense price competitions.

Heavy investment on research and development.

Non-price competition.

Patented technologies.

Consistently creating new application.
In our opinion, iPods are in oligopoly market. It is because in recently, there is
Samsung which occupies smartphone market nearly 75% in this quarter. In the old days,
Apples with iPod occupies almost 80% that market, so this argument appearance is
reasonable, but in recently after Steve Jobs death, the impact of Apples in this market
decreases awfully. Additionally, existing competitors such as Nokia also lose their impact on
this market because they can’t follow the change of world in smartphone. Therefore, because
Samsung existence and there are still little firms in this market, iPods are in oligopoly market.
Chapter16 - Monopolistic Competition
In restaurant industry, high turnover and intense competition
By Stephen Watson | News Staff Reporter | @buffaloscribe on April 20, 2013 - 11:47 PM , updated April 21, 2013 at 12:42 PM
Veteran restaurateurs say there’s a low barrier to getting into the business, with many people deciding they want
to open a restaurant because they like to cook, but it’s difficult to succeed in the industry. Restaurant owners
face intense competition, and rising costs for food and labor, and the lingering recession took a toll as more
people ate at home or chose to dine out at lower-cost restaurants instead of the mid-tier establishments where
entrées cost around $20. “It’s a perfect storm of things, I believe.,” said Maura Crawford, a veteran of the
business who was a partner in Left Bank, Le Metro, Solé and Muse. Experienced restaurateurs say they remain
bullish on the industry, but they recognize that even the most successful restaurants can grow stale if they don’t
update their menu or their physical space. “You have to reinvent yourself at least once every 10 years,” said
Steve Calvaneso, whose restaurant holdings over the years have included Hooligan’s, City Grill, Bacchus Wine
Bar & Restaurant and Libation Station. There’s a relatively low bar to enter the restaurant business, and most
people who want to open a restaurant have a better sense of what they want to do with the menu than how they
plan to operate the business. Restaurants offer those types of specials, sacrificing their profit margins in the
process, because they need to get people in the door to help pay their bills, Thomason said.
Article: http://www.buffalonews.com/apps/pbcs.dll/article?AID=/20130420/BUSINESS/130429839/1005
There are two types of markets: monopoly and perfect competition. However, in
reality it is unusual to have those market structures. Instead, there are imperfect competition
such as oligopoly and monopolistic competition.
First, in the monopolistic competitive market, there are many suppliers that have the
market power on their own product because each product seems to be similar but slightly
different. To gain profits, firms have to differentiate their product. In this report, it says that
the restaurants have to reinvent their menu or update their physical space to run the
restaurants continuously and attract consumers.
Secondly, anyone who wants to participate in a market can enter the market freely.
We can link this characteristic with the first characteristic. Because there are always
competitors in a market, each firm has to do something special to be different with others.
In report, it deals with the example of the restaurants but the clothing stores is also
the monopolistic competitive market. For example, these days, the flower patterned skirt is in
popular. All the stores in the streets have that kind of skirts, but the design of the skirt is
slightly different. To sell more than other stores, each store would try to sell different clothes.
Moreover, anyone who wants to sell flower patterned skirts can sell the skirts without
restriction.
This report points some characteristics of the monopolistic competitive market. We
can find more examples of the monopolistic competition such as clothing stores easier than
perfect competition or monopoly.