The UK Supermarket Oligolopy Structure

Keywords: oligopoly market uk, oligopoly market advantages, consumers in supermarkets

There are mainly five key players in the supermarket industry- Tesco, Asda, Sainbury, Safeway and Morrisons (ChinaCCM). Thus, the supermarket industry in the UK could be described as an Oligopoly Market. Oligopolies lie between the definitions of perfect competition and 100 % pure monopoly. Firstly, there are several retailers but just a few big companies who've a huge market share on the market. In the UK, the five big supermarkets totally have 3/4th of the marketplace share (123help me! com). Subsequently, barriers to entry in the supermarket industry in the UK are high. Since the big firms have a great economic of scale in this area and sell products in a minimal price, hence these are competitive. Tesco is usually before all, Asda has been endeavoring to close the distance, and Morrisons is struggling with its acquisition of Safeway. Finally, the firms in the industry are interdependent (Bized, a). The Kinked Demand Curve (Peoi) as body 3 above is principally made of two segments. The range on the up is highly elastic which will appear when the organization is shedding its market show; the lower you are inelastic, this means no firm can gain more market talk about. Oligopoly market, that can be seen as advantages for consumers due to its similar and secure prices, the products are highly differentiation as well. Besides, there's a main downside which is induced by the collusion.

SUPERMARKET SHARE

Tesco: 30. 6%

Asda: 16. 6%

Sainsbury's: 16. 3%

Morrison's: 11. 1%

Summerfield: 5. 4%

Waitrose: 3. 7%

Iceland: 1. 8%

Source: TNS

Figure 2: Supermarket Talk about (TNS, 2008)

Figure 3: Oligopoly kinked demand (Peoi, 2002)

There are some advantages of consumers to buy within an oligopoly supermarket. The price is actually similar among organizations, supermarkets will not change price frequently, as well as homogenous products to purchase.

Firstly, supermarkets have to market price in similar prices or even the same price. Because the organizations are oligopolistic, a Cartel must be found to avoid price compositing, at the moment, collusive oligopoly exist and agreements need to be reached. The larger the number of firms, the greater importance that key guidelines need to be reached (Anderton A. , 2008). Firms could keep their prices at one level for a long time period and then change their prices at exactly the same time. Thus, whichever supermarket consumers purchase, the price will be similar.

Secondly, the price will be steady in the supermarket. Based on the Kinked Demand Curve above, if a company heightens its price will lead to reduce revenue, and so as to decrease the price. Therefore, as Peoi says, a firm will usually make an effort to make the purchase price stably. Additionally, as the kinked demand curve shows, there's a gap between marginal revenue and marginal cost, this means if the price remains the same; it is ideal for many different cost set ups.

Thirdly, consumers have several different sorts of products to choose in the supermarket. Since there is no price competition, the prices won't be an essential requirement for the businesses, rather than it, the brand image and other aspects, such nearly as good looking and function could be more concentrated on (Anderton A. , 2008). As a result, products are usually highly differentiated.

Everything has two edges; there are a few bad aspects for consumers to be at the oligopoly market. For instant, the most bad effect for consumers is the fact that they could need to pay more than the products or services well worth.

Sometimes consumers may pressure to pay in a higher price. Because the companies are price manufacturers, they could collude to set the purchase price in high so that consumers have to pay a high price for their goods or services though this tendencies is unlawful (Welkerswikinomics). For the consumers, this might mean that high prices but possibly low quality. Moreover, if these few businesses are around the planet, it can control the purchase price all over the world. As the graph illustrates below (Bized, b, 2010), the global oil prices should not have been so expensive, but because of the control under a few big companies that in many areas on the entire world, the price have been high for a long time. Compared to 1973, the purchase price becomes so high is principally because two factors, quite one is because of the oligopoly market framework, another one is because the oil becomes less and less in current days and nights. Towards this example, however, governments have no solutions to curb collusion.

All in every, the oligopoly market structure gives a similar and stable price to consumers no matter which company they purchase in. In addition, there are variety goods to choose. Nevertheless, if the firms collude with the other person to make the price high, it is injury to both the economic of level and consumers. It really is difficult to provide a definition that whether the oligopoly market composition is totally good or not, however, on almost all of the aspects, advantages is greater than the disadvantages. An oligopoly market offers a fair commerce on some aspects, it makes companies more concentrate on developing new products, in some level, and it indirectly makes the culture and the technology develop more complex.

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