MEC901 2025 EXAMINATION 2025 MEC901 2025
DISCLAIMER
THE DOCUMENT PRESENTED IS A DEMOSTRATION ON HOW STUDENTS CAN
APPROACH THE EXAMINATION FOR MEC901. IT IS BASED ON PRESCRIBED
MATERIAL AND EXTERNAL RESEARCH. THE DOCUMENT CONTAINS BOTH SHORT
NOTES AND A RESPONSE EXAMPLE FOR EACH QUESTION. STUDENTS ARE
THEREFORE ADVISED NOT TO COPY AND PASTE BUT USE THE DOCUMENT AS A
RESEARCH GUIDE THAT WOULD HELP THEM DRAFT THEIR OWN FINAL COPIES.
,MEC901 2025 EXAMINATION 2025 MEC901 2025
QUESTION 1 (20 Marks)
South Africa’s fresh produce market agents are operating as an oligopoly that
must be broken because it is impeding competition. Critically analyse the
consequences of lack of competition in product markets in South Africa for firm
investments and economic growth
South Africa's fresh produce market agents operating as an oligopoly signifies a
market structure where there are only a few suppliers. This market characteristic has
significant consequences for firm investments and overall economic growth in South
Africa.0717513144
Consequences of Lack of Competition (Oligopoly) for Firm Investments:
i. Reduced Incentive for Innovation and Efficiency: In an oligopoly, where a
small number of businesses own a significant share of the market, there is often
less pressure for firms to innovate or become more efficient compared to
perfectly competitive markets. The Competition Commission's findings highlight
that this market structure is "impeding competition". With limited competition,
firms may not feel the urgent need to invest in new technologies, improved
production methods, or research and development (R&D) to gain a competitive
edge, as their market position is relatively secure. Microsoft's behavior, as
described in the case study, illustrates how a dominant firm might engage in
"anticompetitive practices designed to thwart browser competition on the
merits" and reduce the incentive for competitors to undertake R&D because
"Microsoft will be able to limit the rewards from any resulting innovation".
ii. High Barriers to Entry: The fresh produce market agents are operating as an
oligopoly, which implies high barriers to entry. These barriers make it difficult
for new firms to enter the market and compete effectively. The Competition
Commission's investigation was prompted by complaints of anti-competitive
conduct and high concentration, indicating features that "may be impeding or
restricting or distorting competition and participation". This limits potential new
firm investments in the sector, as prospective entrants face significant hurdles,
reducing overall investment in the industry. In the context of Microsoft, it was
noted that "a potential new operating system entrant faces a high barrier to
successful entry".
, MEC901 2025 EXAMINATION 2025 MEC901 2025
iii. Potential for Reduced Investment from Existing Firms: While oligopolistic
firms may enjoy economic profits, the lack of competitive pressure could also
lead to complacency, where they do not invest as aggressively in capacity
expansion or market development as they might in a more competitive
environment. This is because their existing market share is protected, reducing
the impetus for growth-oriented investments driven by competitive rivalry.
iv. Collusion and Price Fixing: Oligopolies have the potential for collusion, where
a few suppliers "collude with each other to fix the market price to some
artificially high level". The Competition Commission report mentions "alarming
levels of price increases and volatility in pricing" in the fresh produce market,
with increases surpassing the annual inflation rate, raising questions about their
drivers. Such practices divert funds from productive investments towards
inflated profits, which may not be reinvested back into the sector or the broader
economy in a growth-enhancing manner.
Consequences for Economic Growth:
1. Higher Prices and Reduced Consumer Welfare: A primary consequence of
an oligopoly is the ability to maintain higher prices than would exist in a more
competitive market. The Competition Commission found "alarming levels of
price increases and volatility in pricing for various food products, including fresh
produce". These high prices lead to reduced consumer surplus and mean
that consumers, especially "poor and low-income earners, who must spend a
great portion of their income on purchasing essential products," are
disproportionately affected. This limits their purchasing power for other goods
and services, thereby dampening overall aggregate demand and potentially
hindering economic growth.0717513144
2. Inefficient Resource Allocation: In an oligopolistic market, resources may not
be allocated efficiently. Firms might produce at a level that maximizes their profit
rather than maximizing social welfare. This leads to a suboptimal allocation of
resources, meaning the country's "resource base" is not used "efficiently and
effectively", which can constrain economic growth.
3. Reduced Innovation and Productivity Growth: As mentioned, limited
competition can stifle innovation. Innovation is a key driver of long-term
DISCLAIMER
THE DOCUMENT PRESENTED IS A DEMOSTRATION ON HOW STUDENTS CAN
APPROACH THE EXAMINATION FOR MEC901. IT IS BASED ON PRESCRIBED
MATERIAL AND EXTERNAL RESEARCH. THE DOCUMENT CONTAINS BOTH SHORT
NOTES AND A RESPONSE EXAMPLE FOR EACH QUESTION. STUDENTS ARE
THEREFORE ADVISED NOT TO COPY AND PASTE BUT USE THE DOCUMENT AS A
RESEARCH GUIDE THAT WOULD HELP THEM DRAFT THEIR OWN FINAL COPIES.
,MEC901 2025 EXAMINATION 2025 MEC901 2025
QUESTION 1 (20 Marks)
South Africa’s fresh produce market agents are operating as an oligopoly that
must be broken because it is impeding competition. Critically analyse the
consequences of lack of competition in product markets in South Africa for firm
investments and economic growth
South Africa's fresh produce market agents operating as an oligopoly signifies a
market structure where there are only a few suppliers. This market characteristic has
significant consequences for firm investments and overall economic growth in South
Africa.0717513144
Consequences of Lack of Competition (Oligopoly) for Firm Investments:
i. Reduced Incentive for Innovation and Efficiency: In an oligopoly, where a
small number of businesses own a significant share of the market, there is often
less pressure for firms to innovate or become more efficient compared to
perfectly competitive markets. The Competition Commission's findings highlight
that this market structure is "impeding competition". With limited competition,
firms may not feel the urgent need to invest in new technologies, improved
production methods, or research and development (R&D) to gain a competitive
edge, as their market position is relatively secure. Microsoft's behavior, as
described in the case study, illustrates how a dominant firm might engage in
"anticompetitive practices designed to thwart browser competition on the
merits" and reduce the incentive for competitors to undertake R&D because
"Microsoft will be able to limit the rewards from any resulting innovation".
ii. High Barriers to Entry: The fresh produce market agents are operating as an
oligopoly, which implies high barriers to entry. These barriers make it difficult
for new firms to enter the market and compete effectively. The Competition
Commission's investigation was prompted by complaints of anti-competitive
conduct and high concentration, indicating features that "may be impeding or
restricting or distorting competition and participation". This limits potential new
firm investments in the sector, as prospective entrants face significant hurdles,
reducing overall investment in the industry. In the context of Microsoft, it was
noted that "a potential new operating system entrant faces a high barrier to
successful entry".
, MEC901 2025 EXAMINATION 2025 MEC901 2025
iii. Potential for Reduced Investment from Existing Firms: While oligopolistic
firms may enjoy economic profits, the lack of competitive pressure could also
lead to complacency, where they do not invest as aggressively in capacity
expansion or market development as they might in a more competitive
environment. This is because their existing market share is protected, reducing
the impetus for growth-oriented investments driven by competitive rivalry.
iv. Collusion and Price Fixing: Oligopolies have the potential for collusion, where
a few suppliers "collude with each other to fix the market price to some
artificially high level". The Competition Commission report mentions "alarming
levels of price increases and volatility in pricing" in the fresh produce market,
with increases surpassing the annual inflation rate, raising questions about their
drivers. Such practices divert funds from productive investments towards
inflated profits, which may not be reinvested back into the sector or the broader
economy in a growth-enhancing manner.
Consequences for Economic Growth:
1. Higher Prices and Reduced Consumer Welfare: A primary consequence of
an oligopoly is the ability to maintain higher prices than would exist in a more
competitive market. The Competition Commission found "alarming levels of
price increases and volatility in pricing for various food products, including fresh
produce". These high prices lead to reduced consumer surplus and mean
that consumers, especially "poor and low-income earners, who must spend a
great portion of their income on purchasing essential products," are
disproportionately affected. This limits their purchasing power for other goods
and services, thereby dampening overall aggregate demand and potentially
hindering economic growth.0717513144
2. Inefficient Resource Allocation: In an oligopolistic market, resources may not
be allocated efficiently. Firms might produce at a level that maximizes their profit
rather than maximizing social welfare. This leads to a suboptimal allocation of
resources, meaning the country's "resource base" is not used "efficiently and
effectively", which can constrain economic growth.
3. Reduced Innovation and Productivity Growth: As mentioned, limited
competition can stifle innovation. Innovation is a key driver of long-term
