ASSIGNMENT COVER PAGE

Unit Code ECON 1194

Unit Name Prices and Markets
Lecturer Mr. Daniel Borer
Class date & Time Thursday 8:00 AM
Student ID S3881714

Student Name Le Duy Khang

Assignment Name Assignment 3 – Structure – Conduct –

Performance Analysis
Word Limit 2000
Word Count 1767
Assignment due date 27/5/2021
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ASSIGNMENT 3_ECON1194_LE DUY KHANG_S3881714  | [Document subtitle]

 Table of content
Brief description………………………………………………………Page 2

Question 1……………………………………………………………..Page 3

Question 2……………………………………………………………..Page 4

Question 3……………………………………………………………..Page 5

Question 4……………………………………………………………..Page 6

References……………………………………………………………..Page 7

Brief description of Vietnamese Civil Aviation Industry.

(109 words, headings excluded)

Vietnam Airlines was the earliest airline, began with only four aircrafts. Nevertheless, in
2020, Vietnam Airlines is aiming to become the second-largest airline in Southeast Asia, having
the control of over a hundred aircrafts. Besides Vietnam Airlines, there are other competing
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airlines under the names of VietJet Air, Bamboo Airways, Hai Au Aviation and Pacific Airlines,
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and VASCO. In 2019, Vietnam’s airports welcomed 116 million passengers, an increase of 12

ASSIGNMENT 3_ECON1194_LE DUY KHANG_S3881714  | [Document subtitle]

percent compared to 2018.  Cargo increased by 11 percent to 1.5 million tons and aircraft
movement increased by 13 percent to 740,000 flights (Nga Mai, 2021). These statistics make
Vietnam one of the fastest-growing aviation market in the world.

Question 1 (640 words, headings excluded)

“The market characteristics of the passenger airline industry in

Vietnam are most approximately related to oligopoly”
Scope of analysis: The Vietnamese domestic civil aviation whose market is shared by
five different airlines: Vietnam Airlines, VASCO, VietJet Air, Pacific Airlines and Bamboo
Airways.
To investigate the passenger airlines market in Vietnam and validate the given statement, three
main characteristics of oligopoly are considered.
 Concentration Level:
Relying on the existing airlines in the market, and their collective market share, Vietnamese
passenger airlines is elected to be highly concentrated. Spring 2020, VietJet hold the total of
42.2% market share (CafeF, 2020), followed by state-owned enterprise Vietnam Airlines with
33.3% (Ngoc, 2020), newly established Bamboo Airways‘s 12.3% (Vietnamnet+, 2020), Jetstar
Pacific’s 10.6% (Nguoi Lao Dong, 2020) and VASCO (owned by Vietnam Airlines) with 1.6%
(VNA, 2020). Two firms which are VietJet Air and Vietnam Airlines dominate the market of
passenger’s airlines, giving them a concentration ration of 75.5%, which means they have the
highest extent of market (pricing) power. In fact, the dominant of Vietnam Airlines and Vietjet
Air has navigated the passenger’s airline industry in Vietnam toward a duopoly market. Beside
market share, Vietnam Airlines (including VASCO) as a long-standing airline, owns 105
aircrafts (Dien, 2020), while the aircrafts of Jetstar Pacific, VietjetAir and Bamboo Airways are
18 aircrafts (Pacific Airlines, 2020), 80 aircrafts (Len Ninh & Hoai Linh, 2020) and 22 aircrafts
(Thang, 2020) , respectively. The market for passenger airlines in Vietnam fits the description
for an oligopoly market since “the essence of an oligopolistic market that there are only a few
sellers” (Gans, Joshua, et al, 2014)
 Product differentiation:
Although airlines try to classify their services, its core value is still the same under the definition
of “a business that operates regular services for carrying passengers and/or goods by aircraft”
(Cambridge Academic Content Dictionary, 2020). Among five airlines, VietJet Air runs their
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firms through low price-competition strategy (Nhat Anh, 2020). As competition

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in Vietnam intensifies, and new LCCs potentially enter, VietJet’s scale and very low costs will

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be an important competitive advantage ( Capa ,2017). Vietnam Airlines and Bamboo Airways
focus on their four-star in-flight experiences (Ha An, 2021), predominantly focus on two factors:
services and punctuality (Diep Anh, 2020).
All airlines have their own distinguished strategy whether for their price or product, but after all,
they still offer a homogeneous goods, in this case, transportation services. Airlines industries
evolve everyday as one must change in order to catch up with their competitors’ moves,
strengthening the degree of product differentiation, lower the competition’s intensity (Bassi,
Pagnozzi & Piccolo, 2015) and increase market share.
 Barriers to Entry:
New entrants will face barriers that refrain them from entering and competing with the existing
firms.
Firstly, the airline industry is one of the most expensive industry, due to the cost of buying and
leasing aircrafts, safety and security measures, customer service and manpower (Tutorial:
Industry Handbook, Investopedia). Secondly, Decree No.76/2007/ND-CP dated May 09,2007 of
the Government on newly airlines businesses to have at least from 200-1000 billion VND. The
required capital is extremely high, preventing small firms from entering the market. “It’s difficult
to gain approval from authorities in the first place,” said an insider at an airline (Vietnam Insider,
2020). Unlike other major Southeast Asian economies that have welcomed foreign LLCs,
Vietnam does not have foreign-owned budget airlines operating in the market (Tomoya Onishi,
2020). Malaysia’s AirAsia Group, Southeast Asia’s largest budget carriers has tried to enter
Vietnam’s market for four times, but they did not success once (Anh Tu, 2019). Although these
barriers are high, it is not impossible, the authorities are not trying to create a monopoly market
where “[...] an entity has a total or near-total control of a market.” (Kenton 2020). Brand value is
one another obstacles for newly entrants.
According to the above analysis, the given economic statement could be agreed. Vietnam’s
current passenger’s airlines market has matched the three oligopoly structure’s characteristics.

Question 2 (515 words, headings excluded)

“Because an oligopolistic market has only a small group of sellers, a
key feature of oligopoly is the tension between cooperation and self-
interest.” (Joshua Gans, et al 2014)
And the tension mentioned does include the pricing strategy. Price competition is supplier rivalry
based on price only, usually for commodities or the same products (Clay 2003). Reflecting on
the topic during Week 8 of the Prices and Markets course, firms in the Oligopoly market behave
during a strategic situation based on a concept known as the Game Theory (PowerPoint, Slide 9).
Since Oligopolistic markets have only a small number of is a firm, each firm must act
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strategically; each company understands that its profit is determined not just by how much it
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produces, but also by how much other companies create. Businesses in an oligopoly should

ASSIGNMENT 3_ECON1194_LE DUY KHANG_S3881714  | [Document subtitle]

evaluate how its production choice could impact the production decisions of all other companies
in the market before making its choice. Eventually, firms can choose whether they are going to
compete against each other or to cooperate. When firms act together in this way to reduce output
and keep prices high, it is called collusion (OpenStax, 2020). A group of firms that have a formal
agreement to collude to produce the monopoly output and sell at the monopoly price is called
a cartel.  (Principles of economic, 2020). Yet, price-competition is not the only way. In fact,
firms will engage in non-price competition, despite the additional costs involved, because it is
usually more profitable than selling for a lower price and avoids the risk of a price war
(PowerPoint, Slide 28).

Now, reflecting the concepts on the current status of Vietnamese passengers’ airlines, firms are
oligopolists setting their prices through Tacit Collusion. “Tacit collusion” need not involve any
“collusion” in the legal sense, and in particular need involve no communication between the
parties. It is referred to as tacit collusion only because the outcome (in terms of prices set or
quantities produced, for example) may well resemble that of explicit collusion or even of an
official cartel (Marc Ivaldi, et al, 2003). Airlines firm in Vietnam tend to set their price based on
one dominant’s firm, in another words, each firm’s price is highly elastic to one or another. For
instant, beginning of Quarter 2 2020, Vietjet Air decided to raise their price administration
expense to 310000 VND per ticket (Thanh Nien, 2020). Immediately after, Vietnam Airlines,
Bamboo Airways and Pacific Airlines all raised their administration expenses to the same price
(Ha, 2020).
Although they seem to have implicit agreement about setting prices, what set each airline
specifically their name brand apart, is their non-price competition. Since first appeared in 2007,
VietJet Air has done many “boldly” advertising to gain more market share. In 2014, they ran a
bikini airlines advertising called “VietJet Bikini”, which has gained attention from international
news such as The Sun, South China Morning Post Fox News, etc (CafeF, 2020). On the other
hand, compared to Vietnam Airlines' largest competitor in the market, VietJet Air, Vietnam
Airlines has a distinct advantage when it is referred to as the "national carrier of Vietnam”. The
long-standing Vietnam Airlines distinguish their brand through the assurance of quality and
customer services, declaring themselves as “high-end” services (Hai Yen, 2020).

Question 3 (399 words, heading excluded)

“Market failure in airline industry could possibly came from negative
externalities, in this case, a pandemic like COVID-19 caused inefficient
market outcomes.”
Externalities occur when the production and/ or consumption of a good, service has positive or
negative impacts on a third party, who is not directly involved in the market transactions (Daniel
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Borer, 2020). Market failure in airlines industry came from the negative externalities in
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consumption. The consumption of airlines industry is the people buying tickets and flying the

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airplanes. During COVID-19, consumption of airlines industry could be seen as a risk in
spreading the pandemic, ultimately causes a significant risk to the society. The consequences are
the loss for both sides, the consumers as well as the producers. In fact, the scenario has
happened. Now, when I am writing this essay, it is 3:23 PM, 5/20/2021, Vietnam are being hit by
the fourth Covid-19 wave, and the airports are paralyzing. It is reported that Noi Bai airport has
drop from 79000 customers to only 9000 (Vietnamnet, 2021). Such huge drop in consumption
would cause inefficient market outcome for the transportation industry as well as the whole
economy. Biggest firm, Vietnam Airlines (VNA) has loss 3.876 billion VND, on the risk of
going bank-ruptcy (Dong A, 2021). VietJet Air has reported a 61% loss in profit (Hai Yen,
2021). New-comer Viettravel Airlines has withdrawn their proposal to join the market, since
they have lose 25.2 billion VND due to Covid (Hai Yen, 2021).
The consequences are so heavy that the firms are calling for aid from the government. “Any
support policies from the Government or from partners are very valuable when working together
to help airlines reduce difficulties” (Hien, 2020). In fact, the government has helped the firm by
reducing the environmental tax by 30% in the Announcement 185/TB-VPCP (Anh Minh,2020).
They also reduce tax and fees from other fields such as airlines parking fees, takeoff and landing
fees,… .Banks, has lower their loaning interest for VietJet air (Anh Minh,2020). Although these
aid from the authority are considerable, I do recommend more course of action, specifically, I
recommend an action that I think will drive the airline industry in Vietnam out of the deep hole.
A reduction in import and environment tax could help airlines to a great extent. The cost of oil
and gas made up 35%-40% of the total spending of airlines (Anh Minh, 2020); making the taxes
for this segment the highest. Lower or not charging any taxes at all could lift the airline industry.

Question 4 (213 words, heading excluded)

“Especially, when we have millions of firms on the platform, the competition is crazy”, said the
Guest Lecture, Ms Thao-Nguyen Tran-Ngo. Throughout her analysis, the cosmetic industry that
she is working in could be seen as highly competitive. Cosmetic industry is highly concentrated
with thousands of firms, ranging from low-end such as Maybeline, Milani,… to high-end brands
like Estée Lauder Companies Vietnam. On the other hand, the demand of consumers has been
increasing, Vietnam's import of cosmetics has more than doubled from about 355 million U.S
dollars in 2010 to over 790 million U.S. dollars in 2018. ( Statista Research Department, Dec 9,
2020). Such high demand and high supply will lead to a highly competitive firm, especially
when there are no clear barriers to entry or exit.
“If you can personalize the product to each of the customers’ need, I think it is the best way to be
competitive among your peers” is the answer that Ms Thao Nguyen given when asked about how
the firms compete against other brands in the market. “Market research is actually the most
important. We do lab-research to renovate the product every 5 years.”, focusing mainly on the
product, Estee Lauder tries to define their name brand through personalizing the products to fit
their customers’ need.
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References:
D.Ngoc 2020, “Thay đổi trong "miếng bánh" thị phần hàng không Việt hiện nay”, Nguoi Lao Dong, 11
January, viewed 23 May 2021 <https://nld.com.vn/kinh-te/thay-doi-trong-mieng-banh-thi-phan-hang-
khong-viet-hien-nay-20200111165143646.htm>

CafeF 2020, “Thay đổi trong "miếng bánh" thị phần hàng không Việt hiện nay”, Nguoi Lao Dong, 11
January, viewed 26 May 2021 <https://cafef.vn/thay-doi-trong-mieng-banh-thi-phan-hang-khong-viet-
hien-nay-20200111195103674.chn>

VNA 2020, “New players reshape Vietnamese aviation market”, Vietnam Investment Review, 14 January,
viewed 23 May 2021 <https://www.vir.com.vn/new-players-reshape-vietnamese-aviation-market-
73164.html>

Nga Mai 2020, “VIETNAM AVIATION”, International trade aviation, 8 November, viewed 23 May 2021
<https://www.trade.gov/market-intelligence/vietnam-2020-aviation-update#:~:text=Vietnam%20is
%20the%20world's%20seventh%20fastest%2Dgrowing%20aviation%20market.&text=In%202019%2C
%20Vietnam's%20airports%20welcomed,13%20percent%20to%20740%2C000%20flights.>

VTC News 2020, “Những hãng hàng không mới nào đang 'xếp hàng' chờ bay ở Việt Nam?”, 10 July,
Viewed 25 May 2021 <https://vietnamnet.vn/vn/kinh-doanh/dau-tu/nhung-hang-hang-khong-moi-nao-
dang-xep-hang-cho-bay-o-viet-nam-549068.html>

Pacific Airlines 2020, “Doi tau bay cua hang Pacific Airlines co may bay khong”, Viewed 24 May, 2021
<https://www.pacific-airlines.com/doi-tau-bay-pacific-airlines-co-may-bay-boeing-khong.html>

P Dien 2020, “Các hãng hàng không Việt Nam sở hữu bao nhiêu máy bay?”, Phap Luat, 22 August,
viewed 23 May 2021 <https://plo.vn/do-thi/cac-hang-hang-khong-viet-nam-so-huu-bao-nhieu-may-bay-
933416.html>

Principles of Microeconomics, Cengage Learning Australia, 2014. ProQuest Ebook Central,

<http://ebookcentral.proquest.com/lib/rmit/detail.action?docID=1991000.>
Created from rmit on 2021-05-15 00:08:14.

Definition of airline from the Cambridge Advanced Learner's Dictionary & Thesaurus © Cambridge

University Press, <https://dictionary.cambridge.org/dictionary/english/airline>
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Capa 2017, “VietJet Air SWOT: rapid success and growth in booming Vietnam, but future challenges”, 9
October, viewed 23 May 2021 <https://centreforaviation.com/analysis/reports/vietjet-air-pre-ipo-swot-
rapid-success-and-growth-in-booming-vietnam-but-future-challenges-324179>

Matteo Bassi, et al 2015, “Product Differentiation by Competing Vertical hierarchies”, October, Viewed
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<https://www.researchgate.net/publication/283966470_Product_Differentiation_by_Competing_Vertic
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Anh Tu 2019, “Air Asia bỏ tham vọng lập hãng bay giá rẻ tại Việt Nam”, 25 November, viewed 23 May
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Karen Clay, Ramayya Krishnan, Eric Wolff, Danny Fernandes 2003, “Retail Strategies on the Web: Price
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<https://opentextbc.ca/microeconomics2eopenstax/chapter/oligopoly/>

Dong A 2021, “Lỗ thêm 4.900 tỷ trong quý 1, tổng lỗ lũy kế của Vietnam Airlines đã lên hơn 14.200 tỷ,
nguy cơ âm vốn cận kề”, 29 April, viewed 23 May 2021 <https://cafef.vn/lo-them-4900-ty-trong-quy-1-
tong-lo-luy-ke-cua-vietnam-airlines-da-len-hon-14200-ty-nguy-co-am-von-can-ke-
2021042917365899.chn>

Hai yen 2021, “Doanh nghiệp hàng không, du lịch chịu cú đánh bồi”, 20 May, viewed 23 May 2021
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post269457.html>

Phan Trang 2021, “Hiểu đúng về các chính sách hỗ trợ cho ngành hàng không”, 23 March, viewed 23
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khong/426592.vgp>

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