MICROECONOMIC ANALYSIS OF BUA VERSUS DANGOTE PRICE WAR

By Muhammad Sagir Bauchi
12/04/2021

Around October 1929, the values of stocks in the New York Stock Exchange (NSE) market dropped to an unprecedented record level.

Within three days, many investors lose about five billion dollars. Towards the enclose the year, major banks and investment companies lost about USD Eleven Billion. That loss led to the closing of factories and laying off their workers, as economists forecasted more hard times.

But, in places like Iower and Midwestern, economic hard times were already in place Ten years earlier. During the world war, the central government (US) guaranteed farmers of high prices for their crops and livestock.

The farmers took advantage of that livestock their agricultural output, and also, expand their herds. The farmers gained a lot from that favour.In the early 1930s, the world witnessed the aftermath of World War I, which was known as “THE GREAT DECISION “.

During that period, the world witnessed a drastic fall in all economic activities. Factories were closed and many economic entities collapsed. Prices of goods and services skyrocketed, unemployment was high due to the loss of jobs. During that period, classical econ the mists were the theorists that authorities resorted to for economic advice and plans.

As such, they were of the ideadvicethe economy would move back to equilibrium position even without governments intervention by what they term as “INVISIBLE HANDS”-FORCES OF DEMAND AND SUPPLY.John Maynard Keyne was a radical economist that did not subscribe to the economic idea of the classicasubscribets.

He was the person that guided the then U.S govt out of that great economic depression. In his response to the idea of self-adjustment of the economy, in the long run, self-adjustment“in the Long run,n, we are all dead”, as such, he wants the authorities to do away with ideas of thwantsee market economy advocates, and intervene to stabilize prices and supplies from disequilibrium and correct the economic abnormadisequilibriumtely, the authorities heed his ideas and act accordingly.

With his policy prescription, they successfully overcome the great depression,what’s the logic behind the long review?In Nigeria, we’re operating an oligopoly where few firms produce for millions.

They dominated the marketproducemine the supplies in low quantity and also determine the price above margin which in itself is abnormal situations. While in real monopolies, monopolists control only one tool. Either price or supply, but here they control both. And this is as a result of huge FAVOURs they enjoyed from the authorities through policies they lobbied. That’s why we are in perpetual inflation as a huge amount of money chasing few goods produce ed by these Oligopolistic firms.

Economics Science is divided into two categories. They are: Microeconomic and Macroeconomic. Microeconomic studies individual households, and business decisions. It also focused on demand and supply, and other variables that determine price levels.

In a nutshell, microeconomics tries to analyze human choice, decision and the allocation of resources. On the other hand, Macroeconomics studies the decision made by the government as a whole, such as the decision of a govt government in regards to inflation, price stability, unemployment and so on.Macroeconomics takes into account the economy as a whole.

As such, it takes a bottom-line approach to determine the course and bottom-linear economic phenomena.Recently, a competitive r broke out between the two dominant producers of the Nigeria sugar industry; Dangote & BUA.

In microeconomics, the war is known as the “Price War”. It is a situation where two rival firms reduced the price of their commodity to increase their revenue and market story, they did that in the short run.

Whenever the war is intense, the rival firm usually reacts by setting a price lower than the price sereactsthe another rival firm. They’ll keep on with that until they reach a point known as ‘PERFECT COMPETITIVE PRICE’, where none could either reduce or increase his price.

And if one increase his price, he will lose his customers to his rival. And if he refuses the price, he will surely incur a loss.So,reducestter what transferred, the consumer ers are the gainers. Surely, they will only go for a commodity with a lower price, since that the commodities are identical and can serve the same purpose.

But, was the action of BUA emanated from his empathy for the poor? Probably, and from the Microeconomic point of view, no, but only a strategy employed to gain more dominance in the industry, and also, to increase revenues and market share.

This is the standard economic theory regarding the ongoing war.Adam Smith, who disregarding the father of modern capitalism, lived all his life on a philosophy known as “SELF LOVE”. With this, he meant that man is naturally selfish. He loves himself more than anyone else.

In his quest to better himself, he can extend to benefit others. But he intended to better himself not them. Anne intended that he’ll count his gain from the people he bettered.For instance, when a private school is established, the school contribute in three ways; providing employment, imparting knowledge to the pupils, and above all, served as a means of income-generating to the proprietor. So, here, income-generatingught what will better his society, but his intention is to MAbetterIS PROFIT. That is intendsFEES usually vary from time to time.

This is a typical example of our modern CAPITALIST. They can go the extra mile to better themselves at the expense of the poor masses. And they usually hide in the veil ofwelfarismM, while in reality, maximization of the welfarist is what matter to them, not the welfare of the society.Adam Smith, in his Capitalist Bible, “The wealth of a nation” gave the best description of the capitalist, where he said, “It is not from the benevolence (kindness) of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their interest”.

So, with the action of BUA, he wears at least three things; increase his revenue and market share, attract the customers of his rival and gain a big place in the heart of his customers.In every game, there are two players. One may be smarter or wiser than the other.

In this saga, BUA is smarter than his rival. For his single statement made to his dealers is capable of destroying his rival in the industry. His statement, “HIKE PRICE AND lose YOUR LICENSE” portrayed his rival as a WICLOSEeing.

While in reality, he was only employing market politics to do away with his rival in either way.But if we are a little bit away from looking at the action of Bua A from a face value, we can agree that he did the right thing by choosing to go for a small profit and increase his sales, and also puta smile on the faces of his final consumers. And he’s smarter than his rival.

Dangote Group, in their quest to retaliate the action of their rival, filed a petition to the Minister of Industry he accused his rival of operating in impunity, acting contrary to Lofland by the National Sugar Policy by selling their products locally instead of otherwise. As such, he wants them to close the firms of his rival!This surely a case of dominance.

And it is in nature of human being, they don’t want to become petition in whatever they do. But, to be francompetitiveexhibit selfishness in this his reaction. Instead of seeking for government stance to defeat his rival, he should’ve reacted with pity and a sense of sacrificing some of his profits to retain his customers, thereby reducing his price lower than the price set by his rival! As such, his customers would be retained, and he will have surely boxed out hisbe retained of the market.

But calling for the government to shut down his rivals industry will do more harm than good to his market in the eyes of their customers. Because people always chose to reside with those they believe to be oppressed.In this game, people view BUA as a Hero and Dangote as a villain. So, if he truly wants to retain his hard-earned reputation as business-philantropisthard-earned order not to loa see his cuphilanthropistust act wisely.

For a mistake at this stage will surely hunt him in the future. A price war is nothing new in a free market economy. A prices just a strategy employ yed for industry dominance.The Keynesian prescription of the saga is that, in the end, the government must come in, to address one issue in the contention, to safeguard its national development, correcting imitation, generating employment and stabilizing the market/economy, thereby, creating an enabling environment for other investors in the reenabling to facilitate more competition in the Industry.

By doing this, it will create more job opportunities and stabilize the price of commodities since that each of the firms would be wary of increasing their price to avoid losing their customers to their rival.

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  5. I have always believe something in fishing under the cardboard for Nigerian masses life and that of other African countries, yesterday when I saw that the Kano elders have intervenes the rift of BUA and Dangote, I ask some questions, so have have elders? Where were they when Ganduje remove Sunusi? and what is the benefit of their coming together?

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