Running head: MARKET STRUCTURES OF HONG KONG TUITION CENTRES 1

What market structure best represents international school tuition centers in Hong Kong?

Wong Shu Ting, Athena

Word Count: 4000

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 2

Abstract

The assumption that international school tuition centers experience high barriers to entry and

have the possibility of earning abnormal profits suggest that this industry might result in welfare

loss within the Hong Kong economy. Hence, I am interested to find out “What market structure

best represents international school tuition centers in Hong Kong?”

Surveys were conducted with international school students. Results indicate that the industry has

a CR3 = 85.8% with NTK, ITS and HKExcel as the three dominant firms, relying on non-price

competition. In order to discover how these firms established brand loyalty and what are the

different rules and barriers to entry involved, interviews were conducted with former and current

employees of the dominant centers. Locations of the tuition centers were also investigated.

Geographical patterns suggested that Hotelling’s Law is applicable to this industry, therefore

suggesting an oligopolistic nature. However, the PED for tuition services seems to be elastic and

the prices charged for the courses across the three main firms show minimal evidence of price

rigidity or competition, suggesting that the industry shows features of a monopolistic

competition. Little evidence of collusive behavior implies that the industry has minimal risk of

being prosecuted under the Competition Ordinance.

Overall, the international school tuition center industry is an oligopolistic market showing

features of a monopolistic competition. However, this imperfect competitive market

demonstrates that there is market failure. Since tuition is taking resources away from mainstream

education, financial resources going into tuition can perhaps be redirected into school education
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 3

so the quality of school-based education can improve.

(Word Count: 257)

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 4
 

Table of Contents

1. Abstract ............................................................................................................................2

2. Contents ...........................................................................................................................4

3. Introduction ......................................................................................................................6

4. Methodology ....................................................................................................................8

4.1 Secondary Research ...................................................................................................8

4.2 Primary Research .......................................................................................................9

5. Economic Theories ........................................................................................................10

6. Findings .........................................................................................................................13

6.1 Market Share ............................................................................................................13

6.2 Pricing ......................................................................................................................14

6.3 Price and non-price factors ......................................................................................15

6.4 Hotelling’s Law .......................................................................................................17

6.5 MTR Line.................................................................................................................18

6.6 Price Elasticity of Demand ......................................................................................20

6.7 Barriers to entry .......................................................................................................20

7. Discussion ......................................................................................................................22

8. Conclusion .....................................................................................................................26

9. Bibliography ..................................................................................................................28
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 5

10. Appendix A – Interview Questions........................................................................... 31

11. Appendix B - Survey ...................................................................................................32

12. Appendix C – Tuition Prices........................................................................................33

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 6

Introduction

According to The Hong Kong Institute of Family Education, 95% of students in Hong Kong

attend tuition centers (The Hong Kong Institute of Family Education, 2013). This demonstrates

that tuition is in high demand among the Hong Kong population and the market shows economic

significance in the country. The market is divided between tutoring centers focusing on local

school curricula and international school curricula with the former significantly larger than the

latter. There is also significant informal tutoring on a private basis – an aspect that is impossible

to accurately measure, however, one that would impact the behavior of firms in the market.

As an International school student, I have attended tuition centers that focus on International

school education over the years. From my observation, the service provided seems to require

minimal variable costs, since the product being sold is knowledge. It therefore seems that this

market is a lucrative market with firms wanting to enter this market facing many barriers such as

high rent and high labour turnover. Due to my familiarity with international school tuition

centers, it is appropriate to focus on the area of international school tuition centers.

As an economics student, I have been exposed to imperfect market structures and how they lead

to short run and long run profits. If my assumption of high barriers to entry is true, it would

suggest that there may be abnormal profits in the market and therefore welfare loss within the

Hong Kong economy. Furthermore, after the HKDSE was introduced in 2012 (HK Exchanges

and Clearing Limited, 2011), some local school students decided to study either the IB Diploma

or GCE A-Level to avoid the HKDSE Chinese exam because half of all candidates fail the

subject annually and stops them from entering local universities (Yau & Chau, 2015). Hence,
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 7

more local schools are starting to introduce the IB Diploma Programme (Yau, 2015). This has

led to increasing demand in the international tuition market with some local schools moving to

IB and therefore, any anti-competitiveness of the tuition centers that already created some

welfare loss to the society may suddenly get much worse. Hence, there is a broader relevance to

the Hong Kong economy, as government has recently created regulations in all markets. The

Competition Ordinance was passed by the Legislative Council in June 2012 and ha commenced

full operation since December 2015 (Competition Commission, 2015). This means that it is now

illegal to collude, fix prices or to abuse market power. If the international school tuition center

industry is established as a concentrated market, and that the market does have some level of

anti-competitive behavior through collusion, then there may be legal implications, such as

restrictions or imposition of penalties. Hence, I am interested in whether the government should

be looking at the shadow education environment to see if it falls within the scope of the

legislation. This has led me to the research question of “What market structure best represents

international school tuition centers in Hong Kong?”

In order to develop an answer to this question, I am looking at the following three specific sub

questions:

1) What are the characteristics of the main firms in the market?

2) How do firms differentiate themselves to established brand loyalty?

3) What is the relationship between the price and non-price factors in the market?
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 8

Methodology

This essay will focus on answer the research question through a combination of primary and

secondary data sources.

Secondary Research

Relevant economic theory will be reviewed to understand the characteristics of different market

structures and how firms in different markets tend to behave and exercise their power. Other

economic theories will also be reviewed as it may add relevance to the way that the market is

structured. In addition, articles and journals from community and government websites will be

used as references to understand the role of international school tutoring in the Hong Kong

market so analysis about the industry can be carried out more in depth. The price list of the three

main international tuition centers will be compared and analyzed to find out if price competition

exists. The Competition Ordinance will be analysed to discover what the consequences are if

there is evidence of collusion in a market.

Since tuition is offered throughout Hong Kong because of location of different schools, it is

unlike many other markets, which maybe geographically concentrated. I am interested to find out

if there are any forms of clustering or imperfect distribution of the tuition centers or are they just

distributed randomly. I will use online mapping software to see how well it fits in with the idea

of geographical and physical concentration of centers. I will be looking at where they are located

to see if there are any kind of correlation between where they are located and any other market

structure issues such as homogeneity and convenience.

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 9

Primary Research

Cluster sampling will be conducted with a sample of 50 students. Surveys will be given out to

current high school students who study in three international schools in Hong Kong. The aim of

the survey is to find out how tuition centers differentiate themselves to establish brand loyalty,

the nature of the price elasticity in the industry and to determine the estimated market share. A

survey blank is included in Appendix A.

I will then interview past and current employees of the three largest firms. The interviews will be

recorded and transcribed. Respondents to both surveys and interviews will be offered

confidentiality to encourage participation. All interview questions will be the same for

consistency, comparison and contrast (see Appendix B). The aim of the interviews is to

understand the characteristics of the main firms in the market and the relationship between price

and non-price factors in the market.

I will then compare results to the theory and decide which market structure best represents the

international school tuition center industry.

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 10

Economic Theories

A market structure describes the characteristics of market organization that influence the

behavior of firms within an industry (Tragakes, 2011). The four main types of market structures

in economics include: Perfect Competition, Monopolistic Competition, Oligopoly and

Monopoly. Table 1 summarized the characteristics of each market structures.

Table 1. Characteristics of Market Structures

As shown later under the geographic results, it emerges that certain centers seem to cluster near

to each other, I further researched to identify why this might be the case. Hotelling’s Law might

be appropriate to explain the market structure phenomenon. It states that there is an ‘undue

tendency for competitors to imitate each other in quality of goods, in location, and in other

essential ways’ (Hotelling, 1929, p. 41).

Hotelling’s law is considered the opposite of product differentiation and is an observation that

states firms in many markets usually locate close together and produce their goods and services
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 11

with minimal differentiation (Ahlin & Ahlin, 2013). In Hotelling’s Law, the assumption is that

two competing firms each locate at one end of the same street and sell identical products, with

same pricing and customers evenly dispersed. Since everything is homogenous, convenience will

become the only factor that which firm will attract the most customers. Hence, both firms will

move closer to the midpoint of the street to maximize the amount of customers they can attract

and eventually both firms will be located in the midpoint of the street with high proximity and

having customers evenly dispersed again (Ridley, 2012). This is where the Nash Equilibrium is

achieved. Nash Equilibrium occurs when no participant can gain advantage by a unilateral

change of strategy if the strategies of the others remain unchanged (Chang, 2015).

Seemingly Hotelling’s Law illustrates a perfect competitive market, meaning if one firm

increases the price of its products, the other firm will capture the entire market. However in

reality, this is not the case as Hotelling stated that ‘some buy from one seller, some from another,

in spite of moderate differences of price’ (Hotelling, 1929, p. 41). This is further supported when

firms actually differentiate their products to reduce the intensity of price competition “retailers

with greater ability to differentiate their products are more likely to strategically cluster.”

(Picone, Ridley, & Zandbergen, 2009, p. 1) Showing the nature of an oligopolistic market (Weyl,

2011).

Operating as an oligopolistic market suggests that firms might collude. Any forms of collusive

behavior in a market could be at risk of being prosecuted under the Competition Ordinance

(Competition Commission, 2015, p. 4).

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 12

Competition Ordinance: Where the Commission considers collusion in contravention of the

First Conduct Rule has occurred, they will take action against undertakings that engaged in

collusion (Competition Commission, 2015, p. 4). The First Conduct Rule prohibits businesses

from making any decisions that the effect is to harm competition in Hong Kong (Competition

Commission, 2015).
 MARKET STRUCTURES OF HONG KONG TUITION CENTRES 13

Findings

Market Share

A total of 50 surveys were sent out with a response rate of 70%. The 35 samples received

represent students from three schools in Hong Kong: Elsa High School, Yew Chung

International School and Victoria Shanghai Academy. The results suggest NTK has the largest

estimated market share at 34.3%, followed by ITS with 28.6% and HKExcel with 22.9% (Figure

1). These results imply the international school tuition center market is dominated by NTK, ITS

and HKExcel with CR3 = 85.8%. Further analysis will focus on the largest three firms only to

identify which market structure best represents the industry.

Which international school tuition

center are you currently attending? In figure 1, “Others”

NTK HKEXCEL ITS THE EDGE OTHERS represent both international school
8.57%
5.71%
tuition centers operating at a

smaller scale with a total market

34.3%

28.6% share of only 8.57%.

22.9%

Figure 1. Market share of the international school tuition industry

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 14

Pricing

To determine market structures, price rigidity is another important factor. Figure 3 shows the

price charged per session for the same courses in the dominating firms (Appendix C). Data

shows 1 on 1 tuition is the most expensive across all three centers, as student will receive highest

personal attention with the smallest class size.

1600  
1400  
1200  
Price  ($HKD)  

1000  
1  on  1  
800  
2  on  1  
600  
3  on  1  
400  
200   4  on  1  

0  
NTK   ITS   HKEXCEL  
International  School  Tuition  centers  

Figure 2. Prices charged by the three dominant firms for IB/SAT/GCE AL courses

Figure 2 shows NTK charging the highest prices ($920 - $1400), followed by ITS ($356 - $720)

and HKExcel ($300 - $550). The data does not suggest significant price competition between the

three firms since NTK charges nearly twice the price of ITS and HKExcel who do seem to have

similar prices. However, NTK uses creative pricing such as early bird benefits (NTK Academic

Group, 2015) and loyalty bonuses, where differing discounts are given to students depending on

their monthly spending at NTK (NTK Academic Group, 2016). This suggests the published

prices of NTK can be different from the actual prices that consumers are paying.
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 15

Since all the three firms offer courses for the same curricula, it shows that these three firms do

not solely rely on price competition because if they do, the assumption becomes HKExcel will

receive the largest proportion of market shares since the prices of their subject courses are the

lowest and hence will attract all the customers. The fact which NTK charges significantly higher

prices than ITS and HKExcel but remains as the firm with the largest market shares in the

industry shows that firms hugely depend on non-price competition as well, which will be

analyzed in the price and non-price factors section.

Price and non-price factors

From the 35 samples received, students who are attending the largest three firms are asked why

they have chosen the tuition center.

Results show the majority of the students choose NTK because of reputation. NTK was

established in 1996 (NTK Academic

NTK  
Group, 2015), it is one of the earliest
Expensive  
international school tuition centers in
8%   8%  
Convenience  
8%  
Hong Kong. Since NTK has a long
(Location)  
Quality  of  tutors   history, 34% of the surveyed students
34%  
25%   Peers'  referral   associate it with good reputation.

Reputation  

17%  
Others  (Please  
specify)  

Figure 3. Reasons choosing NTK

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 16

ITS is mainly associated with peers’ referral and the quality of tutors because it is a partner

with Pearson and therefore particularly attached to the Edexcel Exam Board. Also, ITS is the

only tuition center in HK that can offer public exams, this helps to create credibility. Moreover,

the interviewee from ITS

ITS  
mentioned “we only want the
0%   Expensive  
best tutors” and put emphasis on
10%   10%   Convenience  
(Location)   academic excellence. This
10%  
Quality  of  tutors   demonstrates the tutors at ITS
30%  
Peers'  referral   have high quality standard and

40%   Reputation   hence there is a high percentage

Others  (Please  
of peers’ referrals.
specify)  

Figure 4. Reasons choosing ITS 43% of the surveyed students

HKExcel   specified they choose HKExcel

because it focuses on the IB Diploma

0%   Expensive  
curriculum. Despite HKExcel also
12%   Convenience  
(Location)   offers A-level and SAT courses, the
38%   Quality  of  tutors  
interviewee from HKExcel
25%  
Peers'  referral  
emphasized they are “IB strategists”.

Reputation   They also offer additional programs

13%   12%  
Others  (Please   called “IB Capture 7 programme”.
specify)  
Their targeted customers are mainly

Figure 5. Reasons choosing HKExcel IB students.

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 17

Hotelling’s Law

Since HKExcel and NTK use non-price competition and are both located in Causeway Bay,

Hotelling’s Law seems to be applicable to this industry. A major characteristic in Hotelling’s law

is convenience. More customers can be attracted with higher convenience.

Figure 6. Maps showing an area of Causeway Bay

Figure 7. Maps showing an area of Sheung Wan

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 18

NTK, HKExcel and ITS are located in various parts of Hong Kong. However, upon further

research, I found that other centers seem to be located very close (figure 7 and 8); showing high

proximity. They are located so close to each other suggests Hotelling’ Law may apply here. This

indicates they are seeing each other as equally competitors and according to Hotelling’s Law it

indicates there is likely to be an oligopolistic nature in the industry. The reason that centers tend

to be clustered together means they do not want to lose any customers that are closer to the other

centers. If centers are closer to each other, then they can be attracting other than the convenience

of where they are. However, it must also be noticed that in reality, the extent of strategic

clustering might have overstated location (Picone, Ridley, & Zandbergen, 2009, p. 1). Hong

Kong is a city that is densely populated (Yeh, 2011) and the rent is among the highest in the

world due to land scarcity (InterNations, 2015). Therefore, while it may seem on the surface that

Hotelling’s law applies here, it is possible that the clustering of centers has other explanations

such as the rental prices, limited location options and convenience to the MTR line rather than

clustering together.

MTR Line

In order to discover if there are other explanations for the clustering of centers, I further

investigated the geographical areas of the tuition centers locations. It appears that many tuition

centers are located very close to the MTR line, which is the most convenient transportation in

Hong Kong (Information Service Department, 2015). Hence, areas around MTR stations always

have the highest population in a district. This implies firms also use this as a strategy to establish

convenience.
 MARKET STRUCTURES OF HONG KONG TUITION CENTRES 19

Using NTK, ITS and HKExcel as examples, it takes less than five minutes walk from the

tuition centers to their closest MTR stations (figure 9). Even though Hotelling’s Law also

mentioned the importance of convenience, it is not related to the distances of transportation

locations. Locating near MTR lines shows firms do consider convenience as one of the most

important non-price factors as it is a place with higher population and hence can increase the

probability of more customers visiting their centers. Since many tuition centers have already

taken into the account of the importance of convenience, so it will not be a characteristic that

differentiates between them, it actually becomes a necessary element for them to locate near

MTR stations. This explains why the majority of surveyed students did not choose convenience

as the reason for tuition centers.

Figure 8. Maps showing the distance between the tuition center and the closest MTR station for NTK, HKExcel and ITS
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 20

Price Elasticity of Demand

Surveyed students are asked if they will continue to attend the current tuition center if the tuition

fee increases by 10%, 20% and 30% respectively, to find out the price responsiveness in this

industry. These percentage changes are chosen for consistency. PED is calculated using the

equation below:

%  𝑐ℎ𝑎𝑛𝑔𝑒  𝑖𝑛  𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦  𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑  𝑜𝑓  𝑎  𝑝𝑟𝑜𝑑𝑢𝑐𝑡

𝑃𝐸𝐷 =
%  𝑐ℎ𝑎𝑛𝑔𝑒  𝑖𝑛  𝑝𝑟𝑖𝑐𝑒  𝑜𝑓  𝑎  𝑝𝑟𝑜𝑑𝑢𝑐𝑡

Results are shown in table 2:

Table 2. Survey results on the price responsiveness in the industry

Based on the representing sample, the PED is larger than 1 with a Δ%𝑃 = 20% or above, this

indicates the PED for this industry tends to be elastic.

Barriers to entry

Tuition centers are required to register under the Article 13 of the Education Ordinance

(Department of Justice, 1997) if they are teaching more than 8 students at a time or more than 20

students in a day. The registration is a form of legal barriers to entry, as one of the interviewees

mentioned “ It takes more than a year to get registered. We need to prepare our own registered
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 21

documents and to get approvals from the Fire Services Department, Land and Building

Clearance and the Education Bureau in terms of factors such as safety and proximity.”

Other types of barriers to entry also exist in this industry. As mentioned previously in section 5.4

Hotelling’s Law, Hong Kong is city with significantly high rent. Therefore, the cost for setting

up a tuition center can be fairly high. Furthermore, an interviewee mentioned “I signed a

contract and cannot work in other tuition centers within 1 year after I left” and another

interviewee also mentioned “It is the restraint of trade. Tutors are restricted for a period of six

months to teach in other tuition centers”. This implies the number of tutors that can actually be

employed may become scarce and hence tuition centers may need to hire tutors from overseas.

This may largely increase human resources costs. Therefore, financial barriers in this industry

can be fairly high.

Moreover, restraint of trade creates a reputational barrier as well because if a tuition center is

searching for well-known or experienced tutors, then the tuition center may not be able to hire

them because of restraint of trade.

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 22

Discussion

From the findings shown above, it clearly explains that the international tuition center market is

not a perfectly competitive market because it has a CR3 = 85.8%, also the services provided are

not homogenous; there is level of differentiation. Hence, firms in this market are not price takers.

Neither is the market a monopoly as there is more than one dominant firm in the industry. This

allows the analysis to be focused on monopolistic competition and oligopoly.

The barriers to entry for setting up a tuition center are fairly high. Legal barriers exist, as

approvals from the Education Bureau and other government departments are required. Also,

different regulations must be followed by the potential tuition center in order to be registered as a

school. Rent and human resources costs can be significant as well so financial barriers are high.

Contract rules and restraint of trade create reputational barriers since tuition centers may find it

difficult to hire qualified tutors. Furthermore, the three dominant tuition centers all provide fairly

homogenous products and use non-price strategies. Even though these findings shows the market

demonstrate the features of an oligopolistic market, it does not mean the market is a definite

oligopoly.

Even though legal barriers described above seem to be high in terms of money and time invested

in getting registered, for investors with a lot of capital and a long-term view of growth, these

barriers to entry might not considered to be significantly high. The dominant centers established

brand loyalty not only through building trust and a good relationship between tutors and

students, but also using non-price factors. NTK is associated with long history, ITS is the only

tuition center that can offer public exams and HKExcel specialized in the IB curriculum.
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 23

However, even though product differentiation and brand loyalty do exist, results show that

PED is elastic because the services provided have many close substitutes. These show features of

monopolistic competition.

As the findings show, NTK charges significantly higher for the same courses that are also

offered by both ITS and HKExcel, showing that the firms tend to use strategic pricing. NTK,

however, also uses complex pricing including offering different levels of discounts and rewards,

which reduces the likelihood of this industry to represent a collusive oligopoly. However, there

exists the possibility of minimal tacit collusion because the price differences between ITS and

HKEXCEL is significantly smaller than the price differences with NTK. Since the prices of the

courses charged are public, there will be no necessary communication required, one firm can

simply charge a similar price as another dominant firm in the industry. The structure seems to

suggest a blond of monopolistic competition and oligopoly. However, there is seems to be little

evidence of collusive behavior. This would imply the industry is currently not at risk of being

investigated under the Competition Ordinance.

Furthermore, this industry satisfied Hotelling’s Law as the centers are located very close to each

other, suggesting the tuition centers do consider each other as rivals, taking into consideration of

the competitors’ actions. They are clustered together to attract more customers, to create

convenience so they will not lose any customers that are closer to the other centers and

eventually achieve Nash equilibrium in Game Theory, where both firms receive the same level

of benefits as their outcome with neither of them having an advantage over the other. Even

though the distribution of the tuition centers satisfied Hotelling’s Law, the reason that they
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 24

cluster together might also depend on other factors such as limited location options and

convenience to the MTR stations. Hence, it again suggests that industry has characteristics of an

oligopolistic market but not a definite oligopoly.

While one of the criteria that need to be assessed is the existence of abnormal profits in the short

and the long run, it does seem that the firms are privately owned firms. Therefore, it is difficult

to assess this area. However, I would assume that there maybe abnormal profits because it

operates as an imperfect competitive market. However, without assess to the financial

statements, I could never determine whether these are in the short and long run. Table 3

summarized the characteristics that apply to the international school tuition center industry.

Table 3. Characteristics of the international school tuition center industry

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 25

Therefore, with a CR3 = 85.8%, legal barriers not considered to be significantly high for

investors, firms differentiate their services through non-price competition to establish brand

loyalty suggesting that the market structure that best represents the international school tuition

center industry is an oligopolistic market showing features of a monopolistic competition.

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 26

Conclusion

The research question “What market structure best represents international school tuition

centers in Hong Kong?” is answered by identifying the characteristics of the main firms in the

industry; it suggests the market structure that best represents the international school tuition

center industry is an oligopolistic market showing features of a monopolistic competition.

However, there are some limitations in this research.

Students were surveyed from only three international schools in Hong Kong. Therefore, the

sample may not be fully representative of international school students. Further research could be

undertaken to access the full population of international school students.

Financial data is difficult to acquire in this industry, as it is confidential. Economic profit levels

are key evidences to show which market structure the industry follows since oligopoly can earn

abnormal profits in long run but monopolistic competition cannot.

The reliability of the PED calculations maybe questioned as elasticity is usually based on real

life changes in price rather than hypothetical changes. People’s beliefs on what they do might not

necessary match with what they actually do.

Furthermore, this research only focused on the existence of firms in the market but not the

private tutors. It is impossible to measure this aspect because there are no formal records for

theirs transections. However, they can be potential competitors of the existing tuition centers,
MARKET STRUCTURES OF HONG KONG TUITION CENTRES 27

which may impact the behavior of firms in the market. The industry may actually be even

more competitive in reality.

Since the results from the analysis supports this industry is an imperfect competitive market, it

implies there is market failure. Production differentiation leads to neither productive nor

alloctive efficient and consumer surplus reduces because higher price needed to be paid for

differentiation.

Education is a merit good and tuition centers also fulfill this criterion. However, this can be

challenged because tuition is taking resources away from mainstream education. Hence, it is

certainly not considered a merit good by the government since the government should provide

sufficient education. The financial resources going into tuition can perhaps be redirected into

school education so the quality of school based education can improve.

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 28

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MARKET STRUCTURES OF HONG KONG TUITION CENTRES 30

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MARKET STRUCTURES OF HONG KONG TUITION CENTRES 31

Appendix A - Survey

Questions

1. Which International school tuition center are you currently attending?

(Please provide your answer in the blank space below)

2. Why do you choose the tuition center you mentioned in Question 1?

(Please select ✓ one of the boxes)

☐ Expensive
☐ Convenience (Location)
☐ Quality of tutors
☐ Peers’ referral
☐ Reputation
☐ Others (Please specify)

3. Would you still attend your tuition center if there is a percentage change in price of 10%?

☐ Yes
☐ No

4. Would you still attend your tuition center if there is a percentage change in price of 20%?

☐ Yes
☐ No

5. Would you still attend your tuition center if there is a percentage change in price of 30%?

☐ Yes
☐ No

--- End of Survey ---

MARKET STRUCTURES OF HONG KONG TUITION CENTRES 32

Appendix B – Interview Questions

I am a student studying in Elsa High School and is doing research for my Economics Extended

Essay, with the aim of finding out what market structure best represents the international school

tuition centre industry in Hong Kong. I would appreciate it if you could take a few minutes to fill

out this survey. Thank you. I would like to conduct an interview with you to understand more

about your tuition centre,

1. What qualities does your tuition center have that differentiate/ stand out from other
tuition centers?  
 
2. Why is your tuition center located in this area?  
 
3. What are the advantages/disadvantages of having braches for tuition centers?  
 
4. Do you know any tutors who teach in other International School tuition centers?  
 
5. What is the proportion of students who come to your tuition center because of peers’
referral?  
 
6. Does your tuition center do online tuition? If yes, why?  
 
7. What is the proportion of students who do two or more subjects in your center?  
 
8. Are there any concerns if you need to close down your tuition center?  
 
9. What strategies do you use to attract more students or preventing them to switch centers?  
 
10. Are there rules that tutors must follow in your tuition center?  
 MARKET STRUCTURES OF HONG KONG TUITION CENTRES 33

Appendix C – Tuition Prices

Prices charged by the three dominant firms for IB/SAT/GCE AL courses.

(All the prices are obtained through phone calls to NTK, ITS and HKExcel)

  Prices  are  in  units  of  HKD  

  Class  Size  (Student:  Tutor)  

Tuition  Centers   1  on  1   2  on  1   3  on  1   4  on  1  

NTK   1400   1250   960   920  

ITS   720   440   396   356  

HKEXCEL   550   340   320   300