Toridoll taking over Tam Chai Yunnan Noodle

Questions:

Restaurant group Toridoll (丸龜製麵) is known for operating the udon chain in Japan. Recently, it took over the Hong Kong’s popular Tam Chai Yunnan Noodle chain (譚仔雲南米線).

(a)    To which kind of integration does the takeover belong to? Explain. (2 marks)

(b)    State THREE motives behind this takeover decision. (3 marks)

(c)    How does this transaction affect the HK’s GDP? Explain. (3 marks)

(d)    How does this transaction affect the Hong Kong’s balance of payments? Explain. (3 marks)

(e)    If the Japanese company remits all the profits generating from the Tam Chai Yunnan Noodle chain to Japan, how does it affect the Japan’s GNP? Explain. (3 marks)

Although the Tam Chai Yunnan Noodle chain accounts for about 70% of noodle market in Hong Kong, its peculiarity can be said to form a market on its own.

(f)    To which market structure does it belong to? Explain. (2 marks)

(g)    Does this imply that it can raise prices without any restrictions? Explain. (2 marks)

Answers:

(a)

Lateral integration (1)

Similar but not competing products are combined. (1)

(b)

Economies of scale (1)

Explore the new market (1)

Diversify the risk (1)

(c)

No effects on GDP  (1)

Does not involve any production (1)

A change in ownership (1)

(d)

Capital inflow (1)

Favorable effects on capital account (1)

Favorable effects on the balance of payments (1)

(e)

It is income from abroad. (1)

This raises the net income from abroad (1)

This raises the Japan’s GNP (1)

(f)

Monopoly (1)

There is only one seller. (1)

(g)

It is still subject to the law of demand (1)

Following a price rise, the quantity demanded will fall. (1)