DQ 4: Microeconomics [10 Marks]

The following excerpt is from ABC News, 23 May 2021, regarding recent closures of Target department stores in Australia:

"Target is just the latest casualty of Australia's ailing retail sector, with the owner of the iconic department store, Wesfarmers, announcing the closure or rebranding of more than 160 sites."

Retail strategist Brian Walker said every great retail brand has "a story, it has a point of difference and it has a competitive reason to be there".

"But new competitors in the shape of H&M and Uniqlo all took chunks out of Target and it didn't have an anchor that made it unique," he said.

a)According to the quotes, does the market that Target operates in have strong barriers to entry? [1 mark]

b)According to the quotes, is the retail market that Target operates in characterised by identical products? [1 mark]

c)Which market structure would seem most appropriate for analysing this news story about Target? Perfect Competition, Monopolistic Competition, Oligopoly or Monopoly? Explain your choice. [3 marks].

d)Using a well-labelled diagram, illustrate the effect of H&M and Uniqlo entering the Australian retail market on Target stores, using the market structure you identified above. [3 marks]

e)Explain the expected effects on Target's marginal revenue of H&M and Uniqlo's entry to the Australian market, making reference to your diagram. How would this affect Target's decisions? [2 marks].