Part A: Market Power causes and consequences:

Considering the supermarket industry in New Zealand, why can it be classified as a duopoly market structure and not monopolistic competition; and what economic forces in the groceries industry can cause this form of market structure outcome? What are the main economic concerns, in relation to strong market power in the duopoly supermarket industry conditions in NZ? In particular, explain using economic analysis and your knowledge based on pricing, and game theory(Nash equilibrium and prisoner's dilemma), how and why price competition and other efficiency or equity aspects of the market may be affected, during extended periods when two firms have a duopoly situation. Draw a diagram to support answer.

Part B: Regulation Policy Options:

Commerce Commission's interim report has suggested some potential regulation policy options. What are some viable and effective policy options? Which of policy options are expected to be most effective and why? Does it recommend one of the main policies being considered by the Commerce Commission "to facilitate the entry of a third supermarket chain in this market"? Analyse using economic reasoning (e.g. Monopoly, Oligopoly and Competitive Market) and explain why, or why not. Also consider and discuss whether and why the government may have hesitations in taking up this particular policy recommendation, based on advice by some economists?