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Section A: Case study question [30m]A New Way Ahead
Table 1 -
Singapore Hotel Statistics
Note: Figures for 2010p are forecasted numbersSource: Singapore
Tourism Board
Table 2 -
Number and classification of Hotels in SingaporeType of Hotels
Number Classifications
International & Luxury Hotels 42 5 - starsBusiness &
Shopping Hotels 50 4 - stars
Budget Hotels' 53 1 -
3 starstNote: The nu otels.Fragrance Hofel has 21 hotels in
Singapore
Source Booking com 1996 -
2010 & budgetsingaporehotels com
Extract 1: New types of hotels in SingaporeMillennium &
Copthorne Hotels, a market leader in the hospitality industry in
Singapore,has officially opened its new studio-inspired chain here.
Chairman Kwek Leng Bengsaid at the launch of the firm's first
Sfudio M outlet yesterday that he intends tointroduce a "real
budget hotel" that "nobody has seen", although there are no
firmdetails yet. The price of land will be one factor that will
influence the firm's plans, but MrKwek believes the concept is
sound. He added that ideal locations would be outside ofthe central
area, unless the Government could give shorter leases with lower
premiumsfor centrally located land sites. The firm's main event
yesterday was the launch of theSfudio M Hotelin Robertson Quay. lt
is aimed at young travellers who want designer-type, quality
accommodation at affordable prices. "This is not a five-star
hotel," Mr Kweksaid, but it fills "the gap between a good four-star
and a budget hotel" and could beviewed as "limited service. with a
twist".
Adapted from The Straifs 77mes. 18 June 2010
Extract 2: Fight between luxury hotels in the USAWith the summer
travel season upon us, hotel companies are vying for
travellers'dollars by ramping up their loyalty rewards programs,
even trying to one-up each otherin their offerings.
lnterContinental Hotels Group (lHG), with a chain of
internationallyaccfaimed hotels globally, came out this week with
its latest Priority Club Rewards deal:a "Points & Cash" program
that allows members to redeem night stays with a
2006 2007 2008 2009 2010pHotel rooms 30,686 30,087 32,000 32,709
naAverage room rate (S$) 164.4 201.7 245.2 190.6 naHotel room
revenue (S$ m) 1,503.9 1,857 6 2,102.2 1,507.4 naVisitor arrivals
('000) 9,751.0 10,284.5 1 0,1 1 6.1 9,682.7 10,776.4
-
combination of cash and loyalty points accumulated from previous
stays. And just lastweek, Hilton Hotels Group, a similar
international and luxury hotelier, announced itwould be giving away
complimentary Live Nation concert tickets to Hilton
"HHonors"members who register and stay at a Hilton hotel before
Sept. 30.
While most hotel companies increase their loyalty program
offerings in time for summer,this year's deals seem to be coming
more frequently as hotels scramble for marketshare during the
recession. For example, when Starwood Hotets Group,
anotherinternational hotel group announced a deal in January for a
preferred-guest programthat allows people to use points to bid on
special events, including suite tickets to theAmerican /dols tour,
/HG countered the next quarter with all-access passes to the
MajorLeague
,Baseball All Star game. And Marriott International matched
Hilton's no-blackout'-date policy in the first quarter.
Adapted from adicle by Maya Meineft, 30 Jun 2009,
htto://industrv.bnet.com
Extract 3: Tried and tested wayWhile discounts on room rates is
the most frequent strategy used, marketingapproaches such as
focusing on particular market segments and distribution channelsare
considered by hotel operators to be the most effective to maintain
service levels andlong{erm brand loyalty. Hotels can increase their
revenues by charging premium pricesto the less price-sensitive
market segments and at the same time charging discountedprices to
the more price-sensitive market segments. Adding a time element,
pricediscounts can be given for early bookings, group bookings as
well as stays during off-peak days and hours.
Adapted from wvw.hotelmarketing, 1 Apr 2010 &
decisioncraft.com 2010
Extract 4: Singapore's New Integrated ResortsSingapore has been
missing that "certain something" as a tourist destination.
Now,finally, it may have the answer in two integrated
casino-resorts - the recently openedUS$4.4 billion Resorfs World
Senfosa (RWS) from Malaysian gaming giant GentingGroup and the
US$S.S billion Marina Bay Sands (MBS). The two resorts -
withgovernment regulations allotting less than 5% of their space
for gaming - reflects anattempt to diversify Singapore's tourism
base to compete more effectively withneighbouring countries. But
their success depends on how consumers react to theexpected
imposition of restrictions by the government in the form of a
592,000(US$1,440) annual fee or 5$100 entry fee, as well as
stringent rules for traditionalgambling junkets2 to deter money
laundering.
1 Black-out refers to a period of time in which special offers
or items may not be available at a reducedprice; usually when
places are expecting large numbers of customers, during weekends or
holidays.
2 The junket operator (hired by the casino) will charter an
airline to take 80 or so gamblers to one specificcasino- They will
all receive full Room, Food & Board and have run of the casino.
In return, they all paythe junket operator a certain amount of
money up front.
-
RWS'S four hotels and shop outlets on Sentosa lsland opened
January 20, with anothertwo hotefs, Equarius Hoteland Spa Villas,
to be launched after 2010. The other mainattraction - Southeast
Asia's first Universal Sfudlos theme park - expected to open
soon,targets a wider family-focused audience with its theme park
and the world's largestmarine life park. Apart from the 26 function
rooms, a 1,600-seat theatre and a luxuryspa, it boasts a strong
Food & Beverage component too. Throw in the casinos to
help'subsidize such major tourist and visitor attractions and you
have a clear win-winscenaflo.
MBS is located in Marina Bay's prime city centre, suited for a
convention-fuelleddestination. Apart from the usual hotel
facilities, there will be theatres and a museumbut it is her iconic
Sands SkyPa* with the signature-curved three hotel towers that
willbe perceived as a must-visit property on an international
level. Working with theSingapore Tourism Board on joint marketing
activities, MBS has sales networks inChina, Hong Kong, Japan,
Korea, Thailand, India, as well as in Europe and theAmericas that
will target the markets of Southeast Asia, China, lndia, Middle
East andRussia, as well as the U.S. and Europe.
Adapted from hotelsmag.com, Thomas Steinmetz 2010Questions(a) i.
ldentify the year which experienced the greatest increase in
average t1l
hotel room rate in Singapore.
ii. Using the data and economic theory, explain whyrate of
hotels in Singapore fell in 2009.
the average room Wl
(b) Describe the market structure of the Singapore budget hotel
industry.(c) Explain the barriers to entry that a new hotel
developer would face to
compete with Studio M.
(d) Using the data provided, discuss the effectiveness of price
and non-pricestrategies adopted by hotels in the face of
competition.
(e) Discuss the possible impact of the opening of the two
integrated casino- t10lresorts on the hotel industry and the
welfare of society in Singapore.
Total:30m
t3l
t4l
t8t
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Section B: Essay questions [50m]Answer two questions.
1. a) Examine the price elasticity of demand, the cross
elasticity of t10ldemand and the income elasticity of demand for
road usage byprivate motorists in Singapore.
b) ls road pricing the best way for the Singapore government to
sotve t15lthe problem of road congestion?
2. a) Explain the strengths and weaknesses of the different
market l12lstructures.
b) Using appropriate illustrations, assess the view that
oligopolies and [13]monopolies are the most suitable market
structures for therespective industries in which they are
found.
3- In 2009 the Malaysian government spent RM74 billion (4.7 %o
of GDP)on subsidies. The bulk of this spending went to subsidising
theproduction of petroleum, food and education.
Adapted from The Sun 3 June 2010
Discuss whether a government is likely to achieve the
microeconomic t25lgoals of efficiency in resource allocation and
equity in distribution ofoutput by intervening in the manner
described above.
End of paper
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able 1: Total Health Care diture as a 7o of GDP:2003 2004 2005
2006 2007 2008
US 15.2 15.4 15.2 15.3 15.7 16.2UK 8.0 8.1 8.2 8.2 8.4 8.7
Sinqapore 4.5 3.7 3.5 3.3 3.1 3.3
Section A: Case Study Question [30m]The Health Care Industry
Source-' World Health Sfafnftbs 2006 -
2011
Table 2: GroMh in US Health Gare Costs:2010 -2011
Conrponents
Crowth in Health Care Costs 6.1",'"General lnflation
Health Care Price lncreases Above lnflationCost ShiftirrgHigher
P ricecl Technologi esRecltrced Provide r Competition
lncreased Utilization.Aging
LifestyleNew TreatnrentiNltrre
IntensiveDiagr-rosticTesting/Defensivel4edicine 17.6oi,
Source. PricewaterhouseCoopers esflrnafes
Extract 1: Bigger and better -
America's big hospital groups will continue to gobble
upcompetitors
The US health care system, arguably the most market-oriented in
the world, is probably the mostinefficient: it costs the US
government over 15% of its GDP which does not even provide
medicalcoverage for everyone. Yet the US Congressman Paul Ryan
believes there is nothing that thefree market competition cannot
fix. He has proposed shifting government health care provisionfor
the elderly and adults with permanent disabilities to private
health care providers by 2022,which would then cap government's
cost.
Prices in the markets for televisions, cell phones, clothes and
major appliances have declinedover time. But health care is
different whereby the consumer is at a disadvantage. We're
reallygood at picking out the most suitable of four available
cereals or cars to meet our needs but notwhen it comes to health
care. How qualified are you to evaluate the thousands of doctors in
thearea where you live? lt's also hard to shop for an orthopedic
surgeon after you've just brokenyour leg. Leaving health care
provision to the free market may mean that people who cannotafford
it will just die. The industry has enjoyed pricing power that ought
to be attractingcompanies into the business. Instead, there have
been mergers and acquisitions, which accountfor the rising
costs.
2.8"1o
1.6"h
31.39i
25.0%
43.8"h
1.7"ir19.1"i,
17.6"i,
35.3"2i,
-
Mergers and acquisitions are nothing new in the industry as they
carry the benefit of economiesof scale. The rationale for joining a
larger chain is simple. lt means better access to capital
forrenovation and expansion, better management and
-
most importanfly -
more bargainingpowgr when negotiating treatment prices with
health insurers. Relativety small physician -grouplare joining the
ranks of national provider conglomerates and demanding premium
rates for theirservices. In fact, the number of physicians involved
in mergers and acquisitions has increasedeight-fold from2007 to
2010.
Big hospitals are able to perform many laboratory tests in
large, automated facilities, requiringlarge capital investment but
promising considerable economiei of scale for common,
routinizedtests. Such high fixed costs as well as expertise and a
good reputation are deemed barriers toentry and contestability.
Since hospital laboratories are part of hospital global budgets,
there arestrong incentives for these big hospitals to out-source
testing that incurslower costs.
In addition, the implementation of the "Obamacare" health
reforms requires hospitals to investheavily in technology even as
the government cuts payments for treatments due to the
wideningbudget deficit. Hospitals will increasingly have to
demonstrate the quality of their services. Smallhospitals may
struggle to meet such demands while bigger groups will be better
equipped.
Nevertheless, growing larger may bring its own challenges such
as problems of control andcoordination within different
departments. Capital renovation also means rising medical costs.For
instance, using a robot for a heart bypass operation reduces the
patient's relovery time bythird but it raises the hospital bill
substantially. Patients are usually unaware of the increasecost due
to the use of the robot, since their insurance pays the bills, Also
there's no competitivepressure to lower costs, as Intuitive Surgery
is the only company that makes a surgical robot.
Big drug companies are pouring money into clinical trials for
all kinds of new drugs and makingbig money for as long as patent
protection lasts. Americans hate to be denied any kind o1treatment.
Dying patients understandably place a high value on life, so they
are willing to paymore for treatment- America's propensity to pay
encourages investment in iesearch, thls d'rugcompanies will be able
to recoup their investment in America while other countries take a
freeride. Yet, this means that these companies can charge steep
prices for their drugs.
ln the long run however, mergers and acquisitions are expected
to produce increases inefficiencies for hospital providers that may
be passed along to patients in lower or moderatedrates.
Furthermore, such consolidations help to remove excessive
competition that may interferewith greater cooperation in research
and development among hospital providers.
Adapted from: Various sources 2008 -
2011
Extract 2: Making prescription drugs more affordable
ln an effort to make prescription medicine more accessible and
affordable for people across thecountry, U.S. Congressman Sherrod
Brown today introduced a bill that would use marketcompetition to
reduce the high cost of prescription drugs. Brown_said his proposal
wouldimplement product licensing of patents on essential medicines
whose high pricesare detrimentalto public health. Competitors would
be permitted to market new drugs before the patent expires,paying
the patent holder a fee for that privilege. Although patients witl
benefit from some $26billion of drugs that is expected to lose
patent protection in 2011, 50 per cent of drugs still remainunder
patent protection beyond 2014.
-
Such a bill is necessary because drug companies charge Americans
high prices. Drug companyprofits outpace those of every other
industry by at least 5 per cent last year.'Drug companiesget huge
tax breaks, most research and development is publicly funded, and
drug firms' chargethe highest drug prices in the world. American
drug companies have had it good at the expenseof people who cannot
afford to pay absurdly high prescription drug prices. We must
protectpublic health and make essential prescription drugs more
affordable," Brown said.
The legislation also would require drug manufacturers to
publicly disclose information relevant tothe pricing of their
drugs. This provision will allow consumers to assess the
reasonableness ofdrug companies' pricing. lf a drug manufacturer
fails to comply with this provision, it would beineligible to
participate in future government health care programmes.
Adapted from wvnu.affordablemedicine.org Jun 08 2010
Extract 3: Challenge to control rising health care costs
THERE is no such thing as free health care. This is a key
principle that makes Singapore'ssystem among the most
cost-effective in the world.
At a two-day Economist conference on March 30,2010, Health
Minister Khaw Boon Wan saidpoliticians have to telt the truth and
not promise free health care for all if ballooning costs are tobe
controlled. In Singapore, patients know they have to shoulder part
of the cost for health careservices, and thus look for value for
money and do not over-consume.
With ageing populations and slower economic growth placing
severe cost stresses on systemseverywhere, countries are urgently
seeking health care reform. Singapore itself is not immune torising
costs, Mr Khaw said. Though the country has kept its health care
cost at below 4 per centof its gross domestic product (GDP)
- a figure others find "amazing"
- it will not stay that way
because of the ageing population here, he added.
The minister said the way foruuard lies with people having a
strong sense of personalresponsibility for their own health. Older
patients also need to ask if they truly require theservices of
multiple subspecialists. Promoting competition among providers,
publicising theirperformance and making sure consumers seek value
for money are some ways to do this, hesaid. This is why the
Ministry of Health (MOH) provides patients with information by
updating thebill sizes for the 70 most common hospital treatments
on the Internet monthly, so that they canmake better choices.
ln time, MOH will provide more information, such as surgical
complication rates and hospitalacquired infection rates, to
patients. "A better educated and better informed population has
thepotential and capacity to consciously choose healthy lifestyles,
pursue disease prevention, earlydetection and treatment, and to
comply with doctors' instructions on managing their illness,"
hesaid.
The one area of medicine where innovation has been rare and
costs are still low is prevention. Inmedicine, the low-tech
solution can be the most productive. 'We could think of improving
thequality of a patient's life rather than the length, by spending
more money on preventive care."Gefting patients to lose weight,
quit smoking and exercise more would go a long way towardsreducing
medical costs, he said. We can start with the young by reducing the
exposure ofchildren to marketing messages that promote foods high
in saturated fats, trans-fatty acids, freesugars or salt and reduce
the use of powerful techniques to market these foods to them.
Adapted from ST Apr 03 2010
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Questions
(a) (i) Cornpare the trend of total health care expenditure as a
o/o of GDP among thethree countries from 2003 to 2008.
(ai) With reference to the data, explain possible reasons for
rising health care coststo consumers in many countries.
ri\\'' Describe the type of market structure that characterises
the health care market.(ii) Using Extracts 1 and 2, discuss whether
the health care market is able to
achieve the goals of efficiency and equity.
In the light of rising health care costs, evaluate the possible
measures thatgovernments can adopt to keep health care
affordable.
lotal: 30 marks
Section B [50m]Answer two questions.
1. The political turmoil in the Middle East affecting the oil
market and improvements infuel efficiency of "green" cars running
on alternative energy have affected the marketfor normal cars.
Using relevant elasticity concepts, assess the impact of the
above developments on t25lrelated markets.
2. "Plastic bags alone make up around 2.7% of all litter by
weight in Wales and it costsaround flm per year to clean up bag
litter. The government's plan to introduce acompulsory charge of up
to 15p per bag has however met with firm opposition fromthe British
Retail Consortium."
Adapted from Westem Mail, 21 Sep 2009
(a) Account for the market failure associated with the
consumption of free plastic
I2l
(b)
t6l
l2l
[10]
[10](c)
(b)
3. (a)
bags given by retailers.
Discuss the relative effectiveness of taxation in tackling the
above market failure.
Distinguish between the structure of the smartphone industry and
thesmartphone application industry.
The entry of Starhub and M1 into the telecommunications market
in Singaporehas been beneficialto society. Discuss.
End of paper
5
[101
[151
t10l
[1 s](b)
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aDte 1: Per :apita consumption in U.S. (weight in pounds2000
2001 2002 2003 2004 2005 2006 2007 2008 2009Frozen
Yoqurt 2.0 1.5 1.5 1.5 1.3 1.3 1.3 1.1 1.2 1.1
Section A: Gase study question [30m]
ble 1 Pe
Source: U.S. Depadment of Agriculture
The Frozen Yogurt Industry
Extract 1Let's YO! Yogurt is taking the frozen yogurt industry
by storm, with major expansionplans for New York. With a footprint
in neighbouring New Jersey, the all-natural frozenyogurt franchise
known for its innovative use of in-shop social media, wilt
concentrate itsexpansion in New York city with plans to open 30
locations by 2013.
Opening in flexible 1,2OO to 2,000 square-foot spaces throughout
key U.S. markets, theLet's YO! business model is looking to improve
its franchise opporiunities. lt providesinitial and ongoing
training, marketing support, fixed product costs, negotiated
vendorrelationships, and site selection support, among others.
'We are growing at a tremendous pace by positioning ourselves as
a unique leader inthe frozen yogurt industry, unlike anything you
have ieen before. We know how to setourselves apart in a niche
industry. Every consumer is treated to a unique frozen
yogurtexperience by indulging in their favourite frozen yogurt
flavour while enjoying
" 6ip,
social environment," said the manager of Let's yO!
With Apple iPads strategically embedded into the furnishings
that are hooked up to flat-screens, closed-circuit televisions
within the shop, Let's YO! provides a live, constanlyupdated feed
of the company's social media networks. The teievisions allow
consumersto interact with one another, post on the Let's YOI
Facebook page and watch their postappear within seconds on the
screen. Let's YO! has created on-going platforms thatallow fans to
engage with Let's YO! through their favourite social media outlets
at home.
Let's YO! features self-serve frozen yogurt flavours at a
weigh-and-pay price, whereconsumers can enjoy more than B0 lines of
pureed yogurt options derived from localdairy farms, and real fruit
purees. Unique to the frozen yogurt industry, Let's yO! is openfor
all three day parts providing the breakfast, lunch and dinner
crowds with treats all-day long. Guests can choose from a variety
of healthy toppings, including a fun,colourful assortment of
toppings geared towards children. A coffee station feJturing
aspecialty coffee brewer designed specifically for the Let's YO!
chain helps customLrskick-start their day, offering cappuccinos,
lattes, cafe mochas, dark brews, light brewsand decaf coffee
options.
Adapted from The Wall Street Journal (MarketWatch), 12
June2O12
-
Extract 2Tart or sweet, toppings or plain, self-service or
full-service - While the combinations atfrozen yogurt ("fro-yo")
stores seem endless, analysts say the industry's growth is
not.Forecasts for an increasingly crowded and competitive market
have not deterred "fro-yo" companies from embarking on ambitious
expansion plans to capture increasinglyhealth-conscious U.S.
consumers.
lBlSWorld analysts found that the recent bleak economic climate
actually boded wellforufro-yo" sales. Despite low disposable income
and consumer sentiment, consumersindulge in inexpensive luxuries
like frozen yogurt and other comfort foods during gloomytimes.
Although frozen yogurt revenue grew 5.9% annually during the
past five years, it is onlyforecasted to rise 2.4% annually for the
next five years, according to estimates fromlBlSWorld report.
Still, the rapid location growth could be limited in the future,
IBlSWorldsaid. "The number of stores is anticipated to shrink
starting in 2015, as the market forfrozen yogurt becomes overly
saturated and small players struggle to remain open.Larger
operations will survive, while unprofitable ones will likely
consolidate operationsor exit the industry altogether," the report
said.
One company that is still growing in the industry is Red Mango,
which now has about160 open locations and another 160 to 200 stores
in varying stages of development.With a focus on the
health-conscious consumer, the company has serued yogurt since2007
in full-service stores, self-service stores and kiosks.
"The frozen yogurt market as you know is a very competitive
market," Daniel Kim, thecompany's founder said. "Franchising has
been a very fast and efficient way to reallyget the brand out to
consumers across the country. The renewed "fro-yo" enthusiasm isa
re-invention of the frozen-dessert category that is being driven by
the consumer. Wedon't think this is a category that is going to go
away again," he said.
Despite Klm's conviction, the industry's biggest player, TCBY,
has been on the "fro-yo"scene long enough to see the dessert's
profitability wane and rise again. Begun in 1981,the company
quickly ballooned to more than 3,000 locations before scaling
backsignificantly to its more than 600 locations. "Around three to
four years ago, competitionin the frozen yogurt market really
started heating up," said Greg Allison, TCBY's seniordirector of
marketing, insights and innovation.
Adapted from CNBC, 23 March 2012
Extract 3The self-serve frozen yogurt trend sweeping inland from
the coasts has taken off atRapid City in the U.S., where FreshBerry
opened in May to the highest opening sales ofany store in its brand
and continues to be the highest grossing FreshBerry
storenationwide.
-
With as many as three other frozen yogurt chains looking to open
shops in Rapid City,tr-ter9 is increasing competition for
consumers' dessert dollars, as the new stores look tosteal market
share.from.FreshBerry as well as from established shops like Dairy
eueen,Armadillo's, Culveds ard Cold Stone Creamery.
ili^tr:iilit3to be taken to
rrom a bank or serr-serve machines.'#:it:3
i',?,lno?n!ilt;#"1,.l:["'[:L:".",:#iilXtopping bar, including fresh
fruit, cereal, ihocolate chips, nuts and coconut. Then, theypay by
the gram for the total weight of their creation.
Questions
(a) (i)
(ii)
(b)
(i)
(ii)
(c)
(d)
(i)
(ii)
Adapted from Rapid City Joumal, 8 Juty 2012
with reference to Table 1, describe the trend of (per capita)
t1lconsumption of frozen yogurt in the U.S. between 2000 and
200g.'Explain, with reference to the extracts, whether or not you
would I2lexpect the observed trend in (a)(i) to continue into
2012.with reference to the extracts, examine the possible values
ofthe price elasticity of demand for Let's yO! yogurt t3lthe income
elasticity of demand for frozen yogurt. t3lldentify the type of
market structure operating in the U.s. frozen t3lyogurt industry.
Justify your answer.From Extract 2,"The number of stores is
anticipated to shrink starting in 2015, as themarket for frozen
yogurt becomes overly saturated and small playersstruggle to remain
open. Larger operations will survive, whileunprofitable ones will
likely consolidate operations or exit the industryaltogethe/'
Discuss the likely impact of the above on society. tglAssuming
that you are the marketing manager of Red Mango, discuss t10lthe
strategies that will help Red Mango compete in the frozen
yogurtmarket.
Total:30m
-
Section B: Essay questions [50m]Answer two questions.
1. "Market failure cannot be effectively tackled unless its
underlying causes -extemalities, lack of information, and
irrationality
- are accurately identified
and understood."
Using illustrations from Singapore, assess the extent to which
government [25]policies have addressed these underlying causes of
market failure.
2. a) Using examples, explain how a firm can enjoy economies of
scale. [10]b) To what extent do you agree that oligopoly is the
most desirable form [15]
of market structure in Singapore?
3. "When governments intervene in markets, they cause more
problems thanthey solve."
Using examples, assess whether governments should intervene in a
l25lmarket.
End of paper