PART A – Case Study

(40 marks; minimum word count: 1,500 words; maximum: 2,000 words)

Choose an Australian industry and analyse the most important factors affecting its                   profitability by using the relevant concepts and theories we have studied in Lectures 1-9. You should choose the three, four or five factors that have had the most influence on profitability. You can choose factors that are currently affecting your chosen industry, or factors that seem likely to affect the industry’s profitability in the near future. Some possibilities to consider     are:

    Internal rivalry and the market structure: Which market structure best describes the

market (i.e. perfect competition, monopoly etc.)? Why? Things to consider here are the    nature of the firms’ output (homogenous vs. heterogeneous), barriers to entry, “price-       taking” vs. “price-making,” and market concentration (a small number of large firms vs. a large number of small firms). Provide measures of industry concentration if you can. Do  you have reasons to believe that the market structure is likely to change in the future? Is   the struggle for market share and increased profitability reflected mainly in price               competition or in non-price competition? If it is non-price competition, what form does it take?

    Barriers to entry: Are there barriers to entry in your chosen industry? That is, is it

difficult for new firms to enter or is there free entry? Have any significant new firms     entered the industry in the recent past? Consider how brand loyalty, economies of scale, intellectual-property law (e.g. patents and copyrights), and government regulation can   each contribute to barriers to entry.

    Substitutes and complements: Are there important substitutes and complements (in

consumption) that could affect industry profits? You can consider related products that are either currently available or might soon become available.

    Bargaining power of buyers: Is the input of your chosen industry bought by few large

buyers with market power or a multitude of price-taking buyers with no market power?    How does that affect profits? Have producers made relationship-specific investments with their buyers?

    Bargaining power of suppliers: Is the market for inputs in your chosen industry

concentrated or competitive? Here, you can choose to consider the markets for labour,     land, raw materials, and capital. How does the relative concentration in that market affect input costs, and how can input costs affect your chosen industry’s profits? Have the          producers in your chosen industry made relationship-specific investments with their input suppliers (for example, moving their factory close to a supplier’s business)? Can the         supplier exploit this situation and how would that affect profitability? Are there substitute inputs that producers in your chosen industry can turn to?

    Costs: What sort of cost structures do the firms in the industry face? Do the firms face

any economies/diseconomies of scale, scope, and/or learning? How are these cost  structures likely to affect firms’ relative sizes or their profit-maximising decisions?

    Technological change: Have there been significant technological changes affecting

profitability in the recent past, or are any such changes likely in the future?

    Government policy: How does government policy affect the industry? Are there likely to

be changes in government policy in the future that may affect the profitability of the industry?

    Price discrimination: Do firms in your industry engage in price discrimination? If so,

how do they do it, and what enables them to be able to price discriminate successfully?    What type of price discrimination is it? How important is price discrimination for profits? If price discrimination is currently impossible but was possible in the recent past (or will  be possible in the future), discuss how these (expected) changes affect profitability.

    Elasticity of supply/demand: The determination of whether supply and/or demand are

relatively elastic or inelastic would often be important when considering the other factors listed above. Still, if you believe that certain factors can change the elasticity of supply or demand in your industry leading to changes in profitability, feel free to discuss them        separately.

    COVID- 19: Has COVID- 19 benefited or hurt the industry’s profitability in the short run,

and why? Is that effect likely to last even after the pandemic has been brought under      control? Is the industry likely to undergo long-term changes as a result of the pandemic? What do COVID- 19’s effects on the industry tell you about its structure?

The above list is not exhaustive. If you think there are other significant microeconomic          factors, feel free to analyse them. Remember that you do not need to discuss all of the above  points. Your case study also does not need to answer every single question within a given      category. It is enough to discuss the 3-5 factors that you consider to be the most important for your chosen industry.

The library's Industry Information databases can be an excellent source of information and     assistance in your research and can be accessedhere. Some of the databases indexed there      include “Porter’s five forces analysis” of Australian industries. Note that we are NOT asking you to perform a five forces analysis! Assignments that follow the five forces framework will lose marks as that framework is not a good fit for this case study’s prompt .

To summarise, in this case study you should:

    Introduce and define the industry that you will analyse;

    Briefly describe the first factor you will study and analyse it to determine how it

affects the industry’s profitability. Where possible, provide evidence;

    Perform the same steps with the second factor you are considering;

    Perform the same steps with the third, fourth and fifth factors you are considering (if

there are fourth or fifth ones);

    Provide any concluding remarks;

    Add a bibliography, collecting all references cited in the text. (Use a consistent

citation style. We recommend you use either the 7th-edition American Psychological

Association style, also known as APA 7th, or the Harvard Style. Our library’s

excellent citation guide ishere.)

The main factors considered in marking will be:

a)  Research: For example, does the essay display sound and extensive research of the industry chosen?

b)  Knowledge of economic concepts: Has the essay used the appropriate economic concepts? Does the essay show a thorough understanding of those concepts?

c)   Quality of the analysis and application of economic concepts: Is there a logical and thorough supporting argument or description of how conclusions have been drawn?    Have economic concepts been applied in an effective manner? Are the assumptions    clearly described? Is an understanding shown of any relevant qualifications to the       conclusion?

d)  Presentation: Has the industry been properly defined and identified? Are the writing style and organisation of material such that the main ideas and arguments can be        understood? Note that diagrams are often useful for illustrating key economic models and concepts.

Remember, we are looking for sound applications of the key economic concepts that have been taught in the subject.

PART B - Essay

(20 marks; minimum word count: 500 words; maximum: 1,000 words)

Choose a pattern of events or behaviour that you have personally observed and that you are intrigued by, and explain it using an economic concept or concepts we have covered in the subject.

Your limit is 1,000 words. Please do not stuff your essay with complex terminology. Imagine yourself talking to a relative who has never studied economics. The best essays are ones that would be clearly intelligible to such a person. You can include graphs supporting your           argument but that is not mandatory. You need not include a bibliography.

This assignment is not a PhD dissertation. You are not expected to do voluminous research in support of your argument, although a relevant fact or two might help convince yourself and   others that you are on the right track. It makes no difference whether your topic is                   “important,” but try, as best you can, to choose something interesting. A really successful      essay is one that begins with a really interesting question (one that makes the listener              instantly curious to learn the answer) and then uses an economic principle or principles to      construct an answer. It also does not matter whether your answer is “correct” as long as it is   plausible and follows logically from the economic reasons you propose.

You might find it helpful to consider the following prompts while thinking about, writing, and structuring your essay:

1.   Has an interesting phenomenon ever caught your eye and made you wonder what the reasons behind it were?

2.   Why is this phenomenon interesting to you?

3.   Are there some economic concepts covered in class that can explain it? If so, analyse it using these concepts.

4.   How does your economic analysis allow you to better understand the phenomenon in question?

5.   Having applied your analysis, what conclusions can you reach?

The marking criteria in rough order of importance are originality of the question, correct        identification and application of the relevant economic concepts, quality of the writing and of the analysis, difficulty of the question/non-obviousness of the question’s answer, and              appropriateness of the topic for a short essay.

We strongly encourage you to read Chapter 2 of Robert H. Frank’s The Economic                   Naturalist1 , accessible through LMS’ Readings Online. The chapter contains a number of      questions that would be a great fit for this essay, together with short answers. Of course, you  cannot use those for your essay: you must find your own original question. (Note also that the answers in Frank’s book tend to be shorter than what we are looking for here.) Some other examples of good questions are: