1.0 COMPANY’S BACKGROUND
AEON CO. (M) BHD. (AEON) is a retailing company. Aeon is the largest retailer in Asia, it is the holding company of Aeon group. It was incorporated on 15 September 1984. The company operates in two segments; retailing and property management services. It headquarters’ office is located at Kuala Lumpur. It is formerly known as Jusco Supermarket. Aeon retail store sells assorted goods such as clothing, food, household goods among others (Retailbusinessreview, 2014)
The AEON Group of Companies consists of AEON Co., Ltd. and about 200 consolidated subsidiaries and affiliated companies. In addition to its core GMS plus its supermarket and convenience store operations, AEON is also active in specialty store operations and shopping centre development, operations, credit card business and services. The AEON Group of Companies is an integrated Japanese retailer and is active not only in Japan but also throughout Southeast Asia and China. At all times, in every market, AEON’s activities are guided by its unchanging ‘Customer First’ philosophy. Its aim is to surpass expectations by combining excellent products with unique personal services that enhance the shopping experience to make customers smile every time they shop (Annualreport2012-aeonco.m, 2012).
There are three basic principles applied by AEON which are Peace, People and Community. In term of Peace, AEON is a corporate group whose operations are dedicated to the pursuit of peace through prosperity; in term of People, AEON is a corporate group that respects human dignity and values personal relationships; in term of Community, AEON is a corporate group rooted in local community life and dedicated to make a continuing contribution to the community (Annualreport2012-aeonco.m, 2012).
2.0 OLIGOPOLY
An oligopoly is a market condition that exists when there are at least two firms are controlling the market (Investopedia, 2009). When a market is shared between a few firms, it is said to be highly concentrated (Economicsonline.co.uk, 2014). In a result, they can greatly influence price and other market factors (Dictionary.com, 2014). Companies in oligopoly market structure are usually large scale enterprises. The characteristics of oligopoly are as below:
i) Products may be homogeneous or differentiated;
ii) There is barriers of entry into the market;
iii) Only a few dominant firms compete;
iv) Each firm faces a downward sloping demand curve of its product;
v) Strategic independence (Sloman, J, Wride, A and Garratt, D, 2012)
AEON retail store is an example of oligopoly market structure. There are only a few main firm in the market, for example, Tesco, Giant Hypermarket or The Store Supermarket. Therefore, there are only a few of competitor in the market for AEON retail store. So when the price of the product sells between the supermarkets have difference, the demand also will have a big different. For example, when a product of AEON retail store is cheaper than Tesco, the customers will prefer bought the goods from AEON retail store because they may buy the goods with a cheaper price. But sometimes, the total revenue have no different because there have some factor, for example place. When the nearest supermarket from you is the Tesco, you will choose to buy the goods from Tesco because the petrol and the time will cost you more than the price you buy the goods from other supermarket.
2.1 DEMAND
Oligopoly market structure is price maker, but there are still mutually interdependent. The small number of firms let oligopolies to set prices and output levels, to some extent. However, because there are rival firms, oligopolies must take note at how they react to its change in price, output, product or advertising (Welkerswikinomics.wikifoundry.com, 2014).
As in the theory above, AEON retail store is price maker in this market, it cannot simply increase its prices. Retail store is selling necessities, vegetables, normal goods or even luxury goods which playing an important role as people will always go for ‘groceries shopping’.
In this 21st century, people is getting realistic and they will only buy the products if that is the cheap one. Before making decision of which to buy, they will firstly compete the prices between this company and another company. For example, the prices of one can coca-cola is RM2 in AEON and RM1.80 in Tesco. In this case, people will choose to buy coca-cola in Jusco instead of in AEON as the price is cheaper RM0.20. This might affect the demand of the product in Jusco. The law of demand states other things remaining the same, the higher the price of a good, the smaller is the quantity demanded and vice versa.
(Managementstudyguide.com, 2014)
As we can see from the diagram, demand has a negative slope. When the price is increases from P1 to P2, the quantity demanded is falling from Q1 to Q2. However, the law of demand results from both substitution and income effect (Sloman, J, Wride, A and Garratt, D, 2012).
2.2 MARKETS IN ACTION – PRICE ELASTICITY OF DEMAND
Price elasticity of demand can be defined as a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same (Sloman, J, Wride, A and Garratt, D, 2012).
There are three types of elasticity demand which are elastic demand, inelastic demand and unit elastic. That good has elastic demand when the percentage change in quantity demanded is greater than the percentage it change in price and the price elasticity of demand is more than 1; that good has inelastic demand when the percentage change in quantity demanded is smaller than the percentage it change in price and the price elasticity of demand is less than 1; that good has unit elastic when the percentage change in quantity demanded is equal to the percentage it change in price and it price elasticity of demand is equal to 1 (Sloman, J, Wride, A and Garratt, D, 2012).
From the scenario above, people will only demand that particular product when the price is cheaper. In AEON retail store, by applying the concept of price elasticity of demand, people is very sensitive in price changes. Even there is only a little decrease in price, they will still swap to the cheaper product. In this case, this can show that it has an elastic demand.
2.3 GOVERNMENT INTERVENTION
Other than that, the government has also intervened on it. Government intervention means a regulatory actions taken by a government in order to affect or interfere with decisions made by individuals, groups, or organizations regarding social and economic matters (BusinessDictionary.com, 2014). Government has imposed tax on consumers’ spending. For example: if you are spending at AEON Malaysia, you have to pay 6% more on government tax.
This figure shows that imposition of tax by government affect the supply curve shift leftward.
(Oganisian, 2014)
However, according to The Star Online, news on 23 May, 2013, it says that: “The implementation of goods and services tax (GST) in Malaysia is not expected to have any impact on retail group AEON Co (M) Bhd’s earnings. AEON also reported a net profit of RM212.8mil for Dec 31, 2012 against a net profit of RM195.4mil for 2011. It had increased RM3.26bil from RM195.4mil to RM212.8mil. In its annual report, AEON said despite uncertainties in the global economy and challenges in the external environment, domestic demand was expected to remain one of the key drivers of economic growth last year. AEON had announced its first quarter result ended March 31 its net profit soared to RM51.1mil from RM37.6mil a year ago. This was on back of revenue that increased by 11.5% to RM869.3mil” (Thestar.com.my, 2014)
3.0 CONCLUSION
In conclude, AEON retail store is an oligopoly market structure. The products they sell might be same as others but due to some economic reasons, people may choose to buy or not to buy. Price charges is actually a very important reason that will affect the demand and supply of the company. In addition, GST that imposed by government in Malaysia will not affect the net income of the company which can be consider quite a big difference from the concept of economy. From the information given above, we can know about how AEON Co. (M) BHD. operates and that is the few economy theory applied in their company.
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4.0 REFERENCE LIST
1. Annualreport2012-aeonco.(m). 2012. [online] Available at: http://www.aeonretail.com.my/corporate/investor/annual/pdf/2012.pdf [Accessed: 7 Jan 2014]
2. BusinessDictionary.com. 2014. What is government intervention? definition and meaning. [online] Available at: http://www.businessdictionary.com/definition/government-intervention.html [Accessed: 3 Jan 2014].
3. Dictionary.com. 2014. the definition of oligopoly. [online] Available at: http://dictionary.reference.com/browse/oligopoly [Accessed: 5 Jan 2014].
4. Economicsonline.co.uk. 2014. Monopoly. [online] Available at: http://www.economicsonline.co.uk/Business_economics/Oligopoly.html [Accessed: 5 Jan 2014].
5. Investopedia. 2009. Oligopoly Definition | Investopedia. [online] Available at: http://www.investopedia.com/terms/o/oligopoly.asp [Accessed: 5 Jan 2014].
6. Managementstudyguide.com. 2014. Consumer Demand – Demand Curve, Demand Function & Law of Demand. [online] Available at: http://managementstudyguide.com/consumer-demand.htm [Accessed: 3 Jan 2014].
7. Oganisian, A. 2014. Economics 101: Taxes, Minimum Wages, and Why You Shouldn’t Boycott Sweatshops – TheCollegeConservative. [online] Available at: http://thecollegeconservative.com/2012/02/23/economics-101-taxes-minimum-wages-and-why-you-shouldnt-boycott-sweatshops/ [Accessed: 3 Jan 2014].
8. Retailbusinessreview. 2014. AEON CO. (M) BHD.. [online] Available at: http://www.retail-business-review.com/companies/aeon_co_m_bhd [Accessed: 7 Jan 2014].
9. Thestar.com.my. 2014. Aeon director: GST won’t affect group – Business News | The Star Online. [online] Available at: http://www.thestar.com.my/Business/Business-News/2013/05/23/Aeon-director-GST-wont-affect-group/ [Accessed: 3 Jan 2014]
10. Welkerswikinomics.wikifoundry.com. 2014. Characteristics of Oligopoly – Welker’s Wikinomics Page. [online] Available at: http://welkerswikinomics.wikifoundry.com/page/Characteristics+of+Oligopoly [Accessed: 8 Jan 2014].
MICROECONOMICS (ECN60104) 