Oligopolistic markets of UK

Posted on

Since the first ego service nutrient stores were founded in 1940s ‘ UK, the figure of supermarkets and convenience shops have reached 50 five 1000s eight hundred and fifty four ( thepublican, 2009 ) . The position quo of this industry is that about 70 five nowadays of the market are controlled by the large four, viz. Tesco, Asda, Sainsbury ‘s and Morrisons ( Garner, 2008 ) . It means that the market is oligopolistic. The monetary values in all supermarkets are kept in a same degree but differences still exist. One illustration is from the analysis supplying figures of monetary value comparing among these supermarkets. A basket worth ?65.67 at Asda and cost ?69.43 at Tesco. However, consumers have to pay ?76.86 or ?70.69 if they buy it at Ocado or Sainsbury ‘s ( Jamieson, 2008 ) . As the fiscal crisis still screams for attending and the vegetable support job become concentrated in society ( guardian, 2010 ) , it is difficult to vouch the gross and enter supermarket industry. On the contrary, several companies exited markets in 2008 and 2009. FreshXpress, for case, closed down in 2009 and Proudfoot was acquired by Tesco because of the shortage. These groundss prove that the supermarket industry in the UK is oligopolistic as it suits the three characteristics of that market construction which are few houses commanding, mutuality and high barriers ( Anderton, 2008:322a ) . In the UK ‘s supermarket market, non-price competition and monetary value stableness preserve the monetary value in a fixed degree which may convey more benefit to costumiers because of oligopolistic market. On the contrary, the oligopolistic market may take to collusion which is the brotherhood of houses to restrict the competition so that houses can gain more net income ( 2008:324 ) .

There are two major advantages of the oligopolistic market. One is that the oligopolistic market offers a different sort of competition among the providers alternatively of monetary value war, viz. non-price competition ( 2008:322b ) . The monetary value is fixed in a narrow scope. Because of amiss competitory market, the UK ‘s supermarket should find their scheme depending on a selling mix which includes four major factors, viz. merchandise, monetary value, publicity and topographic point ( 2008:323 ) . It means that supermarkets have to analyse the market in order to provide their homogenous goods in an appropriate monetary value which is determined by the quality of goods, furthermore, the method of publicity and right topographic points for consumers relate to the end product of the goods. Therefore, consumers may obtain high quality goods and services such as longer gap hours and lower monetary value because of non-price competition. Different supermarkets have to maintain enhance themselves to pull consumers via widening the scope of services and developing their trade names. For illustration, consumers can happen all Farmfoods shops on the cyberspace so that they can choose the nearest one to see. Natoora allows consumers to buy fresh nutrient and food markets on the web site as the broad services scope is an constituted characteristic of Natoora. The farther illustration is that Tesco ‘s web supermarket about covers all its goods with the aid of the largest graduated table. ( somucheasier.co.uk, 2009 ) .

The other affirmatory factor is that oligopoly offers a stable monetary value. Figure one shows that the kinked demand curve theoretical account assumes that the monetary value will eventually repair at the point at monetary value P1 and measure Q1. Other houses will maintain their monetary value when one house increases. However, they will cut down their monetary value if one of the rivals decreases its monetary value ( Anderton, 2008:328 ) . It hence decreases the cost of consumers ‘ life. Supermarkets prefer to cut down their monetary value to pull consumers instead than increase the monetary value with hazard of loss. Being affected by that, consumers are able to buy in low monetary value but high quality.

The opposite force of the oligopoly is formal and silent collusion. The former one is an confederation of supermarkets called trust which appears to cut down the impact of competition and the latter one is similar to conceal regulation because most of the houses in this industry understand that they may have more net income. The visual aspect of collusion is because of avoiding competition and gaining more benefit ( Anderton, 2008:323b ) . Firms are non satisfied with monetary value rigidness since adjusting monetary value is a important method to spread out market portion and addition net income. Collusion is the best manner to accomplish their purpose. Uniting with other rivals, supermarkets can cut down their monetary value without doing a monetary value war. As formal collusion is against the jurisprudence in many states, silent collusion is hence adopted by supermarkets in the UK. For illustration, in 2007, Tesco, Asda and Sainsbury ‘s raised the monetary value of goods by 12 nowadays averagely ( Wallop, 2007 ) . It means that the trust is able to set monetary value without sing about the demand. Hence, rip offing appears and trust can gain more unnatural net income to spread out the market portion by cut downing the monetary value. Furthermore, possible competition is another consequence of collusion. Unfortunately, consumers can barely have equal information to understand the market state of affairs and the goods. They are cheated by concerns and forced to accept the unjust monetary value. Particularly the nutrients, which are inelastic goods, they are easy controlled by the trust as their monetary values are ever variable. Such as the illustration above, when three of the large four supermarkets increase their monetary value, consumers may neglect to recognize the factors impacting the monetary values. Merely do they have the surface information and have no pick because the monetary values of these trade goods are about the same in the UK. The increasing family budgets seem to be the direct consequence of the collusion among supermarkets. Besides 2007, the monetary value had hiked by twenty one nowadays in 2008 ( Mail, 2008 ) . Consumers had to pay 16 point six per centum more to purchase milk. English butter worth zero point nine four lb per two hundred and 50 gm.

Another effect of edifice collusion is that trust houses can increase the barriers of the market to elbow out their rivals as the supply of goods are controlled by them ( Anderton, 2008:324a ) . Although the monetary values are ever fixed and low in oligopolistic supermarket industry, the monetary value leading is still on the manus of few providers. It leads to the instability competition. The development of others supermarkets is limited because of their little graduated tables. As the clip goes by, the spread between the large supermarkets and little 1s tends to go farther big because the former owns more resources. There are, for illustration, one 1000 and five hundred Tesco shops in Great Britain ( telegraph.co.uk, 2007 ) . However, merely three hundred Farmfoods shops were founded in the UK ( farmfoods, 2009 ) . Hence, comparing with Farmfoods, Tesco is easier to be chosen by people as their shopping topographic point. It may endanger the assortment of choice and the quality of the goods and services one time some supermarkets supplying characteristic merchandises, such as farmfoods, which sells frozen nutrient in high degree of quality, near down. In add-on, instability competition may do inefficient distribution and waste resources to some extent. Since changeless loss of rivals reduces the competition, the market is shared by fewer providers. The monetary value will be controlled easier by the dominant Sellerss where the resources are concentrated. Furthermore, quality of goods may barely be enhanced in the market with fewer rivals. Consumers hence become the concluding sick persons in this state of affairs.

Harmonizing to the information from the UK National Statistics in figure2 and the illustrations above, these exposed that the monetary value under oligopolistic market is non ever fixed. To seek a larger net income, supermarkets tend to collaborate more to minimise the influence of the competition.

In drumhead, oligopoly is more focal point on the benefit for consumers and introduces competition into supermarket industry by providing high quality goods and services in stable monetary value. On the other side, oligopolistic supermarket is out of balance and inefficient because of the collusion.

Based on the decision above, it proved that the oligopolistic market should be under a sophisticated supervisory system including consumers and authorities in instance of cheating and possible competition which cause high barriers in the market ( 2008:324b ) . The organisations of consumers are necessary to protect the legal rights of consumers. Such as the office of just trading, which provides professional recommendations to consumers and authorities, protects the rights of consumers and guarantees the market in a carnival every bit good as unfastened manner ( office of just treading, 2010 ) . The authorities should roll up and public the market information. It supports consumers to recognize the market state of affairs.

The supermarket industry in the UK is developed and vigorous. It relates to the comprehensive direction and wide experience accumulated for a long clip. Although it is mature and ordered, the supermarket satisfaction study in 28th January 2010 reflected that most of the supermarkets are in the degree between 40 nine per centum to fifty eight per centum ( selling, 2010 ) . To better their services, a figure of jobs are waiting for solution in the hereafter.


Anderton, A ( 2008 ) Economic ( 5th Edition ) Harlow: Pearson Education

Farmfoods ( 2009 ) [ on-line ] Farmfoods, Farmfoods – The Frozen Foods Specialists, hypertext transfer protocol: //www.farmfoods.co.uk/ [ Access day of the month: 1-2-2010 ]

Garner, E ( 2008 ) [ on-line ] tnsworldpanel, Untitled Document, Discounters Set More Records, hypertext transfer protocol: //www.tnsglobal.com/_assets/files/TNS_Market_Research_Market_Share_Nov08.htm [ Access day of the month: 1-2-2010 ]

Jamieson, A ( 2008 ) [ on-line ] telegraph.co.uk, Supermarket monetary value comparing Middle classes face their Ocado minute – Telegraph, Supermarket monetary value comparing: In-between categories face their Ocado minute, hypertext transfer protocol: //www.telegraph.co.uk/news/uknews/2609556/Supermarket-price-comparison-Middle-classes-face-their-Ocado-moment.html [ Access day of the month: 1-2-2010 ]

Office for National Statistics ( 2009 ) [ on-line ] Office for National Statistics, National Statistics Online – Product – Focus on Consumer Price Indices, hypertext transfer protocol: //www.statistics.gov.uk/statbase/Product.asp? vlnk=867 [ Access day of the month: 1-2-2010 ]

Somucheasier.co.uk ( 2009 ) [ on-line ] somucheasier.co.uk, UK Supermarkets Online – The on-line offerings UK supermarkets,

Telegraph.co.uk ( 2007 ) [ on-line ] telegraph.co.uk, Tesco in Numberss – Telegraph, Tesco in Numberss, hypertext transfer protocol: //www.telegraph.co.uk/news/uknews/1548956/Tesco-in-numbers.html [ Access day of the month: 1-2-2010 ]

Tutor2u ( 2006 ) [ on-line ] tutor2u, Microeconomics – Oligopoly Overview, A2 Markets & A ; Market Systems Oligopoly – Overview hypertext transfer protocol: //tutor2u.net/economics/revision-notes/a2-micro-oligopoly-overview.html [ Access day of the month: 1-2-2010 ]

University of Exeter ( 2009 ) [ on-line ] University of exeter, Reconstructing Consumer Landscapes – Rise of the Supermarket, The Rise of the Supermarket in Britain, hypertext transfer protocol: //business-school.exeter.ac.uk/research/consumer_landscapes/shopping/rise.html [ Access day of the month: 1-2-2010 ]

Wallop, H ( 2007 ) [ on-line ] telegraph.co.uk, Supermarkets ‘raise nutrient measure by ?750 a twelvemonth ‘ – Telegraph. Supermarkets ‘raise nutrient measure by ?750 a twelvemonth ‘ hypertext transfer protocol: //www.telegraph.co.uk/news/uknews/1567078/Supermarkets-raise-food-bill-by-750-a-year.html [ Access day of the month: 1-2-2010 ]