The supermarket industry in the UK could be described as an Oligopoly Market. Based on your research into supermarkets in the UK, discuss whether this market construction creates a state of affairs that is more or less to the benefit of consumers.
Tesco makes the loudest noise in the media, with more coverage than Asda, Morrisons and Sainsburys put together. Equally good as ruling the British shopping landscape, Tesco besides regulations online media intelligence about supermarkets. Harmonizing to research commissioned by PRmoment, looking at on-line coverage of Asda, Morrisons, Sainsbury ‘s, Tesco and Waitrose, Tesco had 59 per cent of the coverage, while Sainsbury ‘s generated merely 5 per cent. Asda, the UK ‘s 2nd largest supermarket concatenation, besides came in 2nd with the sum of coverage it spawned, being the topic of 17 per cent of narratives. ( Echo, 2010 )
Features Of Oligopoly
The three most of import features of oligopoly are: ( 1 ) an industry dominated by a little figure of big houses ( 2 ) houses sell either indistinguishable or differentiated merchandises, and ( 3 ) the industry has important barriers to entry ( Amos, 2010 ) .
These three features underlie common oligopolistic behaviour, including mutualist actions and determination devising, the disposition to maintain monetary values stiff, the chase of nonprice competition instead than monetary value competition, the inclination for houses to unify, and the inducement to organize conniving agreements ( Amos, 2010 ) .
Supermarket is a variegation industry. Most markets are oligopolistic. Particularly, Britannic supermarket industry is belongs to the oligopoly market. In by and large, Tesco, Asda and M & A ; S, these companies are the best illustrations in this country. Tesco has the biggest market in the UK, because they have developed a series of shop theoretical accounts to provide the different demands of different clients. For illustration, they have Tesco Express, Tesco Metro shops, Tesco Superstores and Extra Hypermarkets. Both of these are harmonizing to client demands change invariably adjust their offer of goods and gross revenues patterns. Furthermore, harmonizing to most markets could be said to be amiss competitory. A few are monopolistically competitory but the bulk is concentrated markets, dominated by a few providers ( Economicss: 322 ) . Furthermore, oligopoly market constructions are two cardinal points. One is there are few houses exists in this market and they are mutualist. Such as, Tesco and Asda are belongs to a same company, but they have their ain concern theoretical account. From this, it reflects that this is a few companies exist in the market system, and rely on each other. Another one is there are barriers to entry to the industry. It means that if some companies want to come in this market, it is decidedly non an easy thing. And they will cut down the market portion of the few big manufacturers, if they successfully joined into this industry. Besides, non-price competition, monetary value rigidness, L-shaped norm cost curves and collusion are oligopolistic market behavior. In short, both advantages and disadvantages of the market construction for consumers will be show in this essay.
Price Rigidity & A ; Kinked Demand Curved
In general, oligopoly is a good market system. Its monetary value is rigidness. This can be seen the few companies had reached an understanding of the monetary value, and so the monetary value would non hold immense fluctuations. So it can guarantee that the involvements of consumers. The ground of why Tesco gross revenues in the Britain ranked foremost, because its monetary value system. There are four different ways. They are promotion, low monetary value, member monetary value and guaranteed low-cost. Promotion, which put a motto by ‘a different price-cutting publicities launched and surprises every twenty-four hours. Buy many more than the state. ‘ However, there is a time-limited publicity. Therefore, some consumers so as non to lose out on the merchandise, so they will buy it. Low monetary value, who promised to sell all twelvemonth around the low monetary value, this is leting consumers to purchase cheap goods. Member monetary value, it means that passing a dollar value accumulated to give something back hard currency vouchers, and sole members of the lowest. Guaranteed low-price, which is a agency of competition in the market. They ever put the merchandise pricing to a lower limit, and so sold to consumers.
As mentioned above, there is no individual theory of oligopoly. The two that are most often discussed, nevertheless, are the kinked-demand theory and the trust theory. The kinked-demand theory is illustrated and applies to oligopolistic markets where each house sells a differentiated merchandise. Harmonizing to the kinked-demand theory, each house will confront two market demand curves for its merchandise. At high monetary values, the house faces the comparatively elastic market demand curve, labeled MD1Cliffs Note, 2010) .
Matching to MD1 is the fringy gross curve labeled MR1. At low monetary values, the house faces the comparatively inelastic market demand curve labeled MD2. Matching to MD2 is the fringy gross curve labeled MR2 (Cliffs Note, 2010) .
The two market demand curves intersect at point B. Therefore, the market demand curve that the oligopolistic really faces is the kinked-demand curve, labeled rudiment. Similarly, the fringy gross that the oligopolistic really receives is represented by the fringy gross curve labeled adef. The oligopolistic maximizes net incomes by comparing fringy gross with fringy cost, which consequences in an equilibrium end product of Q units and an equilibrium monetary value of P(Cliffs Note, 2010) .
To sum up, the oligopoly market features include supply in the industry merely hold few houses and they must be mutualist. However, the chief supermarkets are dominated by Tesco, Asda and M & A ; S. With the researching of the supermarket industry, it seems excessively many benefits for the consumers. For case, some of the monetary value systems which are publicity, low monetary value, member monetary value and guaranteed low-cost are benefits for the client. All in all, this market construction of the oligopoly is a good signifier in UK.
Anderton, A. ( 2008 ) .Economics ( 5th Edition ) Harlow: Pearson Education
Guardian ( 2010 ) [ Online ] ,Morrisons clear to purchase Safeway.
Available at: hypertext transfer protocol: //www.guardian.co.uk/business/2003/sep/27/supermarkets.uknews
( Accessed 10th February 2010 )