Individual Assignment Microeconomics: Option 1

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MWG from a microeconomic perspective
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Introduction

Mobile World Investment Corporation (MWG), also known as Thegioididong, is Vietnam’s

most well-known multi-category retail platform. Thegioididong and Dienmayxanh are the two

most well-known MWG retail chains. However, both have faced constant drops over the past

few years, resulting in various shutdowns and closures of many stores. MWG has recently

announced that they would close more than 200 stores in the following year. There were many

concerns from both investors and buyers about the company’s future status. How can a

corporation that has dominated the mobile market for years face such situations? Under the

microeconomic scope, this essay will provide explanations and proof of the consequences of this

event to both the mobile market and other competitors.

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Table of Contents

Introduction......................................................................................................................................2

Table of Contents.............................................................................................................................3

Background......................................................................................................................................4

Contents...........................................................................................................................................5

Question 1:...................................................................................................................................5

A. Factors and considerations:....................................................................................5

B. Effects:....................................................................................................................8

Question 2:...................................................................................................................................9

Impacts on consumer choices and competition:......................................................................9

Effects on pricing strategies and consumer welfare..............................................................11

Question 3:.................................................................................................................................14

References......................................................................................................................................16
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Background

Thegioididong.com, a brand belonging to Mobile World JSC (stock code: MWG), was

established in March 2004. They are the leading retailer in selling smartphones, digital devices,

and consumer electronics. Accounting for 25% of the total mobile phone retail market share in

2014, Thegioididong was the biggest enterprise in its field. In 2018, they were one of the top 100

retailers in the APAC region. Besides Thegioididong, Mobile World JSC also witnessed great

successes with Dienmayxanh and Bachhoaxanh, known as an electronics retail chain and mini

supermarket.

Friday, November 24th, 2023, MWG posted their monthly financial report(1) on their

business website. There are several concerns regarding the financial health of the company,

including net revenue and profit.

October’s net revenue dropped by 14% compared to the previous year's period;

meanwhile, up until then, only 73% of this year's target was completed. Dienmayxanh and

Thegioididong, which accounted for a third quarter of the total revenue, saw their combined

revenue noticeably decline by 21% year-over-year. By contrast, Bachhoaxanh’s number shows

positive growth, rising by 13% YoY.

In the third quarter of the year, the consolidated financial statements show that MWG's

financial health has worsened. Although the net revenue of the first three quarters of 2023 was

reduced by 16% YoY, the equivalent number for profit unbelievably plummeted by 98%,

compared to last year. The case worsens when the MWG’s stock price has fluctuated, witnessing

a 20% drop by the end of Q3.

Experiencing such horrible statistics, MWG’s leaders announced that they are

considering closing around 200 inefficient stores in Q4/2023.

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Contents

Question 1: With MWG's plans to close approximately 200 unprofitable stores by year-

end, what microeconomic considerations and factors likely influence this decision? (please

draw diagrams to illustrate your answer), and how it might affect the overall competitive

landscape and market dynamics for mobile retail and electronics in Vietnam.

A. Factors and considerations: Several factors can be listed to explain how this

decision was made.

Profitability.

When a store experiences net loss, it may be because the total cost exceeds the total

revenue. In the short run, the company can consider keeping the store if its total

revenue is higher than the variable cost, but when the variable cost exceeds total

revenue (VC > TR), that firm may choose to shut down. MWG plans to preserve long-

term benefits, so they would decide to exit the market (closing the stores) to prevent

continuous loss from these unprofitable operations.

Locations.
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A store may be situated in inappropriate destinations, where the demand for mobile

phones and electronic devices is significantly lower than in other areas. When facing a

low demand, high supply, and fixed market price, the store may witness a surplus in its

inventories. Adjustments to the selling price are impossible for these retailers when it

may cause noticeable sales losses. The given graph will illustrate how demand and

supply affect MWG’s stores.

Figure 1 - A

This surplus will cause long-term losses to the retailer; therefore, the optimized solution is

to close the store and focus on other profitable areas.

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Competitions.

Competition between retailers is unavoidable, especially in essential markets like

mobile devices. When new merchandisers join the market, the existing sellers may lose

some of their customers to the new rivals. These shares of buyers reduce the demand

for mobile devices from previous sellers (including MWG). This might shift the

demand curve leftward, forcing MWG to lower the product’s price or accept a surplus.

Figure 1 - B will illustrate when the store decided to lower the product’s price.

Figure 1 - B

When the demand curve shifts leftward, the equilibrium price decreases from P1 to P2,

and the equilibrium quantity changes from Q1 to Q2. As mentioned, if the seller keeps

the product price unchanged, it will create a gap between the quantity demanded and
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the quantity supplied, causing a surplus. Therefore, the decision to close the store is

preferable.

Economic depression

An additional objective reason for the closure of 200 stores is economic depression

post-pandemic. The COVID-19 pandemic has left the economy with serious effects

such as unemployment, business shutdowns, and bankruptcy. This has generally

decreased the overall income among consumers. While phones, electronics, and smart

gadgets are standard goods (some even luxury items), a decrease in comprehensive

income would reduce the demand for such items.

B. Effects: Besides consequent impacts to the company, some of the economic effects

towards the overall competitive landscape and market dynamics for mobile and

electronics retail are:

Buyers’s behavior

When MWG closes one of its stores, it benefits other regional retailers. The local

people lost their favorite store, so they had to travel longer to buy at

Thegioididong. Those who are not loyal customers will switch to other alternative

sellers like FPT or CellphoneS. This, unfortunately, increases the demand for

MWG’s rivals, causing the company to lose its market share in the region.

Price control

As mentioned above, rival companies from MWG will benefit from their store

closures, especially in price control. In some areas, the market for mobile retail is

somewhat competitive; therefore, an exit of the Thegioididong store will not

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remarkably affect other sellers. In other regions, however, the electronics and smart

devices retail marketplace is considered an Oligopoly when only 2-3 retailers are

available. As a result, the closure of MWG’s store will strengthen their rival

company's price control. They could increase the product prices when the demand

for their store is inelastic.

New retailers enter the market.

Regarding the previous part, as MWG is leaving the local market, some

merchandisers may take advantage of this closure to enter the market. Previously,

it was ineffective for them to start selling when most of the local people were loyal

customers of Thegioididong or Dienmayxanh; however, when looking for

alternative options to MWG, these new retailers can start their business.

Question 2: In the retail and electronics sector, how does MWG's position within the

market structure, including its extensive network of over 5,500 outlets, impact competition

and consumer choices? How might changes in market structure influence pricing strategies

and consumer welfare?

Impacts on consumer choices and competition:

2023 is a hardship for MWG as it experiences many losses in most retail chains.

However, it is undeniable that Thegioididong is the biggest mobile phone retailer in

Vietnam. Regarding the previous part, Thegioididong accounts for over 25% of the

total smartphone retail market share during its golden period. MWG is the only

representative of Vietnam in the top 100 biggest retailers in the APAC region in 2018.
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Having such an extensive business scale, Thegioididong has a remarkable affection for

the overall mobile and electronic market. Several effects can be listed:

Market dominance

With its extensive network of 5500 outlets, MWG’s retail chains significantly influence

the country. The domination of Thegioididong and Dienmayxanh over many years has

affected many other competitors. Its enormous business scale can greatly impact prices

and prevent small retailers from entering the market. However, there would be some

businesses deciding to enter the market. In such cases, they would suffer from harsh

competition from this powerful rival. Assuming buyers' behavior plays an insignificant

role in their buying decisions and the market for these goods is competitive, MWG

would offer deep sales for their products even if it might be unprofitable for them.

After all, in a competitive market, buyers would prefer firms with cheap product prices.

With such a large business scale, experiencing continuous losses would not be a big

deal for MWG as long as it eliminates other retailers from the market. Small businesses

can survive for 1-2 years, but selling at a competitive price would seriously affect their

long-term revenue, causing them to exit the market after a while. This concept can also

be applied to existing sellers.

In contrast to the previous statement, MWG can charge a higher product price than

other competitors. As buyers become familiar with purchasing goods from

Thegioididong, their demands for MWG’s products are inelastic; therefore, they are

willing to purchase goods from MWG even if they have to pay more.
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Expansion

Being Vietnam's top smart devices retailer is also an advantage for MWG to expand its

business to other fields. Having gained consumers’s trust through years of operation,

any effort of MWG to operate a new retail chain would receive initial support from

their loyal buyers. Taking advantage of this concept, MWG continuously launches new

brands in other sectors, including Dienmayxanh, Bachhoaxanh, or NhathuocAnKhang.

These retail chains not only significantly contribute to MWG’s market share position

but also influence consumers' behavior to buy more products in the Mobile World

ecosystem.

Effects on pricing strategies and consumer welfare

Besides such admirable achievements, Thegioididong has to deal with many problems

related to the closing decision. This will result in a structural change in the mobile phone

and electronic device market. There might be some consequences to pricing strategies and

consumer welfare.

Competitions

In reference to the previous part, such influential retailers as MWG can remarkably

influence mobile and electronics pricing. However, when the formidable seller left

the market, it lowered the competition in the region. This may lead to two possible

consequences:

- Firstly, the local retailers may have more power over price control; as a result,

they may charge a higher product price. When local buyers cannot purchase at

the remaining mobile and electronic shops, their consumer surplus will decrease
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as they pay more for these goods.

- Secondly, new merchandisers can enter the mobile and electronic market due to

the exit of the big enterprise. Having many small-scale firms at the moment

leads to an increase in the overall competition. As a result, buyers may benefit

from lower prices, increasing the consumer surplus.

Amount of supply

MWG’s closure decision can also lead to changes in the number of products

available in the local market. There are two predictions for this change.

- An increase in supply: As MWG leaves certain areas, they might liquidate their

remaining inventories to other rivals. This leads to a rise in the number of

mobile devices and household electronics. Following the law of demand and

supply, an increase in supply will result in a fall in price, benefiting buyers with

a more affordable price.

- A fall in supply: By contrast to the first statement, if Thegioididong and

Dienmayxanh did not liquidate their inventories, the local supply would

reduced. As a matter of fact, this will raise product prices and reduce consumer

welfare.

The following graph will illustrate cases when the product price rises, and the

consumer surplus falls.

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A E

D
B C

Figure 2 – A

When the product price increases from P1 to P2, the quantity demanded changes

from Q1 to Q2. The initial consumer surplus was triangle OBD; when the rise
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happens, it transfers to triangle OAE. Rectangle ABCE is the loss in consumer

surplus when these buyer decisions remain unchanged. The triangle CED stands for

the deduction in consumer surplus if buyers refuse to purchase products with a

higher price. In conclusion, the closure of 200 stores negatively affects buyers’s

welfare by preventing them from buying goods at competitive prices.

Question 3: With the positive revenue growth in October attributed to the new iPhone 15

launch, how elastic is the demand for high-end electronic devices in Vietnam's consumer

market? How might changes in product prices or consumer incomes affect the overall

quantity demanded for such products?

iPhone 15 is often considered a high-end smartphone, appealing to the elite and

high-income people. Having an expensive cost in its first month of release makes it

affordable for rich people only. As a luxury item, the iPhone 15 has a relatively high

elasticity, which makes people highly concerned about price differences between

smartphone stores. For instance, although Thegioididong is well-known and

believed by many consumers, they can experience sales losses if their iPhone 15

price is noticeably higher than that of other competitors. Buyers of luxury products

are usually susceptible to price; therefore, they will choose any retailer selling at a

cheaper price. Assuming that all retailers may agree to sell at a higher price, buyers

will select alternative options (low-end devices) instead of buying that expensive

iPhone 15. The following illustration will demonstrate how elastic. The elasticity of

demand for iPhone 15 can also be shown in buyers’s income changes. As the need

for the iPhone 15 is relatively elastic, a slight increase in consumer annual earnings
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can significantly increase the number of iPhones demanded. The following

illustration will show changes in the quantity demanded of iPhone 15 when there

was a rise in the product price or consumer income.

Price

Q1 Q2 Quantity

Figure 3 – A

When the price rises from P1 to P2, the quantity demanded decreases from Q1 to Q2. As

the demand for the iPhone 15 is elastic, its slope is relatively flat; therefore, a slight increase

in the price can result in a significant decrease in the quantity demanded. It is clear that the

changing portion of quantity is more remarkable than price.

However, there is an exception in the elasticity of the iPhone 15. iFans, who are especially

favorite of Apple’s products like iPhone or Macbook, will have a higher demand for such
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products. Although some people do not have a high income, they still buy the iPhone even

if it is expensive. Therefore, their demands for these products are inelastic.

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References

(1) PowerPoint Presentation (mwg.vn)

(2) mwg.vn/uploads/eng/2023/10/20231030---mwg---fs-consol-q32023-1.pdf