Assignment Sample on Economics of Managerial Decision Making
1. Introduction
Over the past 5 years, supermarkets in the UK have been highly competitive in terms of sales trends and marketing strategies. As the shopping habits and the taste of customers have been changing over the past years, the marketing strategies and sales structures have also changed. This project has focused on the nature of sales trends and selling strategies of the supermarkets in the UK. This case study has also focused on the impact of COVID-19 in the grocery industry. Economic performance of these supermarkets in terms of profit, price and demand has also been discussed.
2. Analysis of the structure of supermarkets in the UK
2.1 The leading supermarkets in the UK and their market share in the recent years
This figure has shown the market shares of the grocers in the UK from the year 2017 to 2020. Corona virus in the end of the year 2019 had changed the graph of UK supermarkets (Lu et al. 2018). Many leading retail and grocers stores including Ocado, Waitrose, Symbols and Independent, and the others were hit by the corona virus outbreak by a large scale. On the other hand, companies like Tesco, ASDA and Sainsbury’s managed to have a large number of shares even in these difficult times. This changed scale of the market share proves the huge impact that COVID-19 had on the economy of the UK.
2.2 Market structure of the supermarkets in UK
Supermarkets in the UK are mainly dominated by the oligopoly market structure concept (Anku et al. 2017).
Their grocery and retail firm is mainly dominated by some of the biggest supermarkets such as Tesco, ASDA and Sainsbury’s. These markets have proven to be the best supermarkets in the retail industry even in the challenging time of corona virus.
An oligopolistic market structure is the most suitable market structure in a country like the UK because of their noncompetitive nature in price setting and high value of customer satisfaction. Due to a low number of successful supermarkets, there is not any competition in terms of pricing (Rickert et al. 2018). The only important factor in this marketing concept is the stability of the satisfaction set by the customers. Oligopolistic supermarkets have a tendency to lower the price setting for the barriers that are about to enter in the market. In an oligopolistic supermarket, price is never the concern for the customers due to the discount and rigid lower rate of the products (Rickert et al. 2018). Excellent quality and fast supply of the products are two other main characteristics of such market structure.
2.3 Comparison to other market structures in terms of price, output and profit
The existing market structure of the UK is based upon oligopoly market concept ( Lan, 2017). Due to the focus on the two main factors in any market, customer satisfaction and rigid nature in price setting, oligopolistic market structure has proven to be the most convenient market structure for the people of the UK. However, there are some other market structures that exist in the supermarkets of the UK. Such as Monopoly market structure, monopolistic competition and perfect competition. Benefits of the oligopolistic markets have been discussed in the previous part of the study.
In a monopoly market structure, only a single existing firm is seen with its full freedom of setting the price of their products with no close substitute products (Clacher et al. 2019). In such markets, the company sets the product’s price based upon the demand and supply of the products.
A perfect competition market includes a large number of markets or a single firm, known as price-taker, has no control over the price setting and has too little consideration of satisfaction of the customers. Their profit and output rate is dependent on a lot of outside factors.
On the other hand, a monopolistic market structure is when the company is neither price maker nor price taker (Rajic, 2017).
Oligopolistic market structure thus has the most effective approach of selling and satisfying the largest number of customers. That is why the market structure is popular amongst the leading grocery companies in the UK.
2.4 Major barriers to enter markets in the UK
There are some operational barriers that occur when entering the supermarket industry in the UK. Such as:
- New entrants face deterration when there is a significant scale of economy that has been exploited by the old incumbents (Wood et al. 2017).
- Owning an old scarce resource by an existing holder of a market can create chaos in terms of business.
- High set up costs that are unchangeable in the time of need is considered to be the one of the biggest barriers to new entrants.
- Predatory pricing or a constant effort to lower the price to keep the rival markets out of the line can be a threat to the new markets.
- High R & D cost is one of the major threats to the new market entrants.
3. Performance of the retailing firms in the time of COVID-19
3.1 Impact of COVID-19 pandemic on the performance of the grocery retailing market
Outbreak of coronavirus has surely made a huge difference in the retail industry in the UK. It has been a significantly challenging time for the supermarkets just like the other markets (Rosnizam et al. 2020)
High spike in online grocery shopping is one of the major issues for the grocery stores as the majority of the people were in lockdown at home. High rate of online shopping caused a great loss for the retail stores.
Maintaining quality of the products has been a great challenge for the grocery markets as people were not coming to the stores as frequently as before and it was nearly impossible to store the products at the same quality for too long a time (Fatricia, 2017).
Demand and supply was one of the major issues faced by the grocery stores. As there were people looking for the maximum number of storage foods and necessary items and storing them for months by purchasing a large number, it was impossible to match the supply and demand curve.
Shopping in a safe environment has been one of the biggest concerns for the retailer industry. Many videos and images were posted in the social media of people abusing other people to get more products (Alexander, 2020). Safe distance was not being properly maintained by the people in the supermarket as the panic level was very high and the pepper precautions were not followed.
3.2 High performance rate of Tesco despite the economic downturn due to pandemic
Tesco might be the only company that had a positive impact on the economy in the time of coronavirus. UK has a specific number of grocery stores that has been able to put their name in the leading industries of the UK. Many rival companies like ASDA and Sainsbury’s has also faced the pandemic in a positive way. However, the profit rate of Tesco has been record breaking in the challenging time. Reason behind this is their managerial approach to the business and their market structure (Mitchell et al. 2020). The market structure of Tesco has been beneficial to the company in the times of pandemic resulting in a high rate of profit and market share.
This figure has shown the profit growth of one of the leading supermarkets of the UK, Tesco. One of the main reasons behind this huge success is their approach in managerial behaviour. Marketing strategies and operating the profit maximization approach is one of the reasons behind their solid performance in the difficult time.
Profit maximization theory is one of the most popularly adapted approaches to have a positive impact in whatever industry. Profit maximization is one of the biggest objectives of supermarket firms.
Conditions included in this theory is the maximization of the revenue cost and profit (Li et al. 2020).Determination of this theory is based upon two terms – Marginal cost and Marginal revenue. Two main conditions in this theory is that the marginal revenue would be the same as the marginal cost. Secondly, Marginal cost would be rising at a point of equality between the cost and the revenue.
Assumptions of this theory are as follows:
- The manager and the owner of the firm is the same person and single handedly takes all the business decisions.
- Profit maximization is the single goal of the firm.
- The firm knows the certainty in demands and the cost functions.
Tesco has a very practical approach in their business operations and has a singular goal of profit maximization (Chronopoulos et al. 2020). Therefore, in the time of coronavirus their market share has risen upto 26.8% by the middle of 2020. Online window of TEsco has a big influence behind this. The moment they witnessed the low rate of customer visits in the stores, online business has been more active. Number of customers has deliberately got larger and the company has had to hire 20,000 new employees to meet the need. Tesco has doubled the capacity of online delivery upto 1.5 million over the last year. Group sales rose by 7% to 53.4 million in the month of february,2020 (Relihan et al. 2020). Tesco’s strong and stable approach has significantly made differences in the supermarket business compared to other markets.
4 . Conclusion
This project is based upon the market structure and selling strategies of the supermarkets in the UK. Since food and grocery industry have been in the most demanded industry all over the world due to constantly changing food habits, the number of supermarkets has gradually risen over the past few years. Strategies taken by the companies and the methods of risk management can effectively help a company in a situation like this company. This approaches and methods are what makes significant differences in the performance in terms of price and profit. Different outcomes of the leading supermarkets have created different graph in the profit rate. Reasons and setbacks of such companies have also been embarked in this project. Methods and ways to fight a difficult situation and keep the productivity the same have been adapted by some of the leading companies in the UK.
Question 1
1.1 Illustrate the demand and supply analysis
According to the researcher’s thoughts, the demand and supply analysis is showing the relation between a product’s demand and its supply chain. As per the research findings, the demand and supply analysis is the preliminary process of the managerial decision making process. With the help of the demand and supply analysis, a price of a product will be determined. Choi et al. (2018) have given a statement on the demand and supply analysis which includes that the resulting or determining price will be the equilibrium price of the product using the demand and supply chain analysis. Here, the researchers have drawn two curves which are demand curve and supply curve respectively. The researchers have used those curves to determine the equilibrium price of hand sanitizer in March and April 2020.
Demand curve
As per the economic researcher’s thoughts, the demand curve is basically a line graph using a specific product’s price and its quantity. In order to create the graph, the price of the product is to be plotted on the Y-axis and quantity of the product is to be plotted on the X-axis (Nazemi et al. 2020).
With the help of the demand curve, the researchers have successfully been able to determine the hand sanitizer demand and set up its price in March and April 2020. This graph shows that the demand of the hand sanitizer in March and April 2020 was really high, so the quantity of the hand sanitizer was also high and oppositely, the price will be decreased for the affordability of the product.
Supply curve
Supply curve is based on some factors like alternative product’s price, the technology used in the production, cost of the labor and the availability of the labor and many more. The supply curve also relies on the product’s quantity and the price of the product (Oumar, 2019). Here also the price of the product is to be plotted on the X-axis and the quantity of the product is to be plotted on the Y-axis.
With the help of supply curve the hand sanitizer’s equilibrium price has been set according to their supply chain in the March and April 2020.
The equilibrium price of hand sanitizer would be 25 rupees in per 50 ml bottles. The researchers have confirmed that this price would be suitable for the standard people according to the demand of the hand sanitizer.
1.2 Implication of the demand supply analysis in managerial decision making process
According to the researchers’ thoughts, the implication of demand and supply curve is mostly needed in the managerial decision making process. Because, the decision of a suitable product’s price would be taken by using the supply and demand curve (Hosseini et al. 2019).
Question 2
2.1 Concept of price elasticity of demand
Basically, the economic researchers use the price elasticity of demand to understand or observe how product’s price changes would affect the product’s demand and its supply. On the other hand, the price elasticity of demands equals the percentage of product’s quantity change which is divided by the percentage of the product’s price change. Świerczek (2019) has given a statement on the price elasticity of demand which states that there are some factors relying on the price elasticity of demand which are alternative product factors and the urgency factor. The alternative product factors define that the price of the product needs to change while its substitute product has arrived in the market. On the other hand, while the product will be going to be very urgent and very demanding, then the price of the product could be changed.
2.2 Implication of price elasticity of demand in managerial decision making process
In order to stabilize the managerial decision making process, price elasticity of demand concept needs to be implemented in the decision making process. Using the price elasticity of demand concept, the economic researchers will be successful to set the suitable price for a demanding product.
Question 3
| Output (Units) | Total Revenue (£) | Total cost (£) | Profit
(£) |
Marginal Revenue (£) | Marginal cost (£) | Change in profit (£) |
| 0 | 0 | 3 | 3 | 0 | Infinity | 0 |
| 1 | 6 | 5 | 1 | 6 | 5 | 1 |
| 2 | 12 | 8 | 4 | 6 | 4 | 2 |
| 3 | 18 | 12 | 6 | 6 | 4 | 2 |
| 4 | 24 | 17 | 7 | 6 | 4.2 | 1.8 |
| 5 | 30 | 23 | 7 | 6 | 4.6 | 1.4 |
| 6 | 36 | 30 | 6 | 6 | 5 | 1 |
| 7 | 42 | 38 | 4 | 6 | 5.42 | 0.58 |
| 8 | 48 | 47 | 1 | 6 | 5.8 | 0.2 |
Table 1: Calculation of marginal revenue and cost for Firm 1 and Firm 2
(Source: Created by learner)
The profit in 4 and 5 per unit production is maximized.
The researchers have recommended that the firm 1 needs to hold their 4 and 5 per unit production because it would become profitable able unit production as per their profit ratio with others.
Question 4
4 (a)
Figure 5: Payoff Matrix for Firm 1 and Firm 2
(Source: Created by learner)
4 (b) Identification of Nash equilibrium outcomes
According to the researchers’ thoughts, the Nash equilibrium outcome theory is used in the decision making process. On the other hand, the Nash equilibrium outcome theory is used to take or choose the optimal decision for conducting the ideal decision making process (Heusel et al. 2017). Here, the researchers have taken the Nash equilibrium outcome theory which contains that there are two optimal solutions. First one is that both firms could not cause any kind of pollution and they will earn £70,000 each in every year. The other one solution is that both firms could process their pollution by dividing the process time into each other.
4 (c) Cooperative outcomes
As per the research findings, the cooperative outcome could be used to maximize the joint payoffs from the both forms. Ashktorab et al. (2020) has given a statement which includes that this cooperative outcome would be occurred in the case of Firm 1 proceeds for the low in the end of the market and Firm 2 proceeds for the high in the end of the market.
4 (d) Significance of game theory analysis in managerial decision making
The analysis of game theory in managerial decision making is a very necessary model. As per the research findings, the researchers use the games theory to optimize and understand the negative and positive payoff from their actions.
Question 5
- According to the following given by firm 2, the researchers have thought that the firm 1 could go with the proposal because it would be profitable of £1,000 in 12 months for the firm 1.
- With the help of the investment appraisal techniques used by the firm 1, the researchers have assumed that firm 1 needs to go with the project 1 because the net present value of project A is more high than project B. This net present value could help the firm 1 to earn profit in the future.
References
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