The Uk Supermarket Industry To Consumers Economics Essay

Harmonizing to Anderton ( 2008:322 ) , ‘An oligopolistic market is one where a little figure of mutualist houses compete with each other. ‘ In add-on, he besides states another four chief features of it, such as ‘Non-price competition ‘ ; ‘Price rigidness ‘ ; ‘L-shaped norm cost curves ‘ and ‘Collusion ‘ . Based on this theory, the UK supermarket industry can be a premier case. BBC NEWS ( 2007 ) studies that ‘Tesco, Asda, Sainsbury ‘s and Morrisons control about 75 % of the UK market ‘ . The portions are illustrated below:

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Figure 1 comparing the food market market,

Beginning: ( BBC NEWS, 2008 )

It can be seen from Figure 1, the bulk of the food market resources are held by these four supermarkets from 1998 to 2008. Particularly, Tesco possesses over 30 % in 2008. This reveals a clear state of affairs of the British supermarket industry which is dominated by the four taking companies. Furthermore, in most instances, monetary value dramas a somewhat less important function between their competitions. Alternatively, there are another eight strategies which these companies focus on, including ‘internet shopping services ‘ and ‘extension of gap hours ‘ ( Tutor2U, 2007 ) . Thesiss are the non-price competitions that aim to keep the stableness of monetary values. BBC NEWS ( 2007 ) claims that these four powerful supermarkets negotiated to find the monetary value of diary goods which is comparatively high. Another research of the nutrient monetary values done by Telegraph ( 2010 ) besides declares that ‘But while consumer monetary values remain high, sweeping monetary values have since declined. ‘ Both of these studies have proven that the large four supermarkets in the UK colluded with each other to organize a trust in order to hang the monetary values at an invariable degree to derive monopolistic power and net incomes. Having said this, an oligopolistic market is likely to make a periodic monetary value war, at least in the short tally. Companies will hold to expect the rivals ‘ following action before changing their pricing scheme. This is because every house in an oligopolistic market has certain grades of market power and common mutuality ( Anderton, 2008 ) . Game theory is more than frequently being used to cover with the pricing scheme given others actions and results. The kinked demand curve of an oligopolistic house besides suggests an of import theory, that the company should follow its rival to cut down the monetary value but maintain it when its rival starts to increase the monetary value degree ( Anderton, 2008 ) . In fact, the similar state of affairs exists in the UK supermarket industry. Daily Mail ( 2009 ) studies that Asda reduces the monetary value of bananas, Tesco and Sainsbury ‘s follow to keep as many clients as possible. In brief, the British supermarket industry possesses the features of oligopoly ; it therefore should be described as an oligopolistic market. This paper will foremost to turn out that the UK supermarket industry is an oligopolistic market. Second, to research the advantages and drawbacks of it to consumers, and to supply a brief treatment of their causes. Finally, to measure the extent of the oligopolistic market that tends to be good to consumers.

The competition between oligopolistic houses will surely convey considerable advantages. First, consumers may profit from the non-price competition. Tutor2you ( 2007 ) lists eight cases of their non-price competition schemes. The most effectual and influential 1s are on-line shopping services and 24 hours shopping services. A BBC NEWS ( 2007 ) study claims that ‘The sum of money spent by consumers shopping online increased by 33.4 % to & A ; lb ; 10.9bn last twelvemonth. ‘ This figure shows an increasing figure of consumers prefer to do purchases online. Figure 2 reveals a uninterrupted addition in on-line ingestion every bit good. Furthermore, this research claims that convenience and bargain rate are the chief subscribers of this increasing ingestion. In add-on, widening gap hours spurs the ingestion every bit good. Consumers now have the option of a more flexible shopping clip agenda. Without take downing the monetary values, the 1 that offers longer gap hours will favourably pull more client penchants.

Figure 2 Total Online Spending

Beginning: ( BBC NEWS, 2007 )

Second, consumers are likely to profit from the monetary value war. As mentioned above, Daily Mail ( 2009 ) studies that ‘the banana monetary values hit 14-year low. ‘ This is because Asda decided to take down its monetary value, and it straight affected the other three supermarkets as they are mutualist. The kinked demand curve suggests that to avoid losing a big part of clients, the house should follow a monetary value decrease. As a consequence, the mean monetary value of bananas in the UK started to diminish. Consumers are now able to buy per unit bananas at lower monetary values.

However, the oligopolistic market construction besides brings certain drawbacks. Harmonizing to BBC NEWS ( 2007 ) , the dairy monetary values in British supermarkets are comparatively high and there is an about 270 million lbs overpayment from the consumers during a biennial period. Another information produced by Telegraph ( 2010 ) shows that the consumer monetary value of a loaf of staff of life raised 0.1 lb whilst the sweeping monetary value of wheat dropped 86.5 lbs per tone. It is apparent that the ruling supermarkets in the UK have big economic system of graduated table and are monetary value shapers. The oligopolistic supermarkets are turning the consumer excess into their ain net incomes, while consumers have no pick but to bear the higher monetary value degree.

Furthermore, despite these high degrees of monetary values, there are besides small replacements for the consumers to buying. BBC NEWS ( 2008 ) claims that this is because the four large supermarkets possess the bulk of market resources and therefore the barriers for an excess company to fall in are significantly high. This issue is seen peculiarly critical given that fact that non all the clients from every corner of the British dirt receive the same quality of services. A lone county may non be covered by the place bringing services and yet they are still paying the indistinguishable monetary values like everyone else are. High barriers prevent the entry of smaller supermarkets which may otherwise supply better services.

In decision, the supermarket industry in Britain is so an oligopolistic market. Its ain features create several advantages and disadvantages. Based on the above treatment, consumers may profit from both the non-price competition and monetary value wars. However, the unnatural market portion of these houses generates the inducement of collusion to capture consumer excess for monopolistic net incomes.

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