Characteristics of oligopoly market and the supermarket industry in the UK

Characteristics of oligopoly grocery and the supermarket fabrication in the UKThe supermarket manufacturing in the UK -Oligopoly MarketThe leading supermarkets in the UK comm just now atomic number 18 known as the big 4, Tesco, Sainsbury, Asda and Morrisons. (oppapers, n.d) It is not doubt that the UK supermarket industry is an oligopoly market because the industry fits the characteristics of the oligopoly. harmonize to Anderton (2008 322), An oligopolistic market is one where a vitiated number of interdependent dissipateds compete with each other. The UK supermarket industry is a dominant example of it. Anderton in addition points out oligopolistic market share a number of characteristics that the industry fits of them. First, there are only four large supermarkets in the market. Second, barriers to entry tend to be high. Third, competition in the UK supermarket industry tends to take the form of non-price competition. Fourth, firms are interdependent. For example, the action s of Tesco will have a direct impact on other forms. Some researches show that supermarkets in the UK have advantages for consumers, which include more products that are useable and special service such as al-Qaida buy atping service. However, this market structure creates a situation that is more disadvantages for consumers as connivance and high market share. The noted benefits of the market structure for consumers are the innovations of the industry and economies of scale. First, as AmosWEB (n.d) indicates that the innovations such as advance the level of technology, expand production function, increase economic outgrowth are likely been developed by oligopoly and the motive of innovations comes from interdependent competition. According to the Anderton (2008328), Supermarkets keep a close eye on the activities of other firms in the industry. Anderton (2008328) also points out, the kinked demand curve model below assumes that if one firm increases its price, the other firms w ill react asymmetri call outy to a change in the price. As a result, the supermarket would not increase their price to earn more profits. Therefore, prices in oligopolistic markets seem not to change as much as perfectly competitive markets, which call price rigidity. (Anderton, 2008323) The supermarket have to innovate so that they can improve their technology such as self-scanning machines, create some spick-and-span productions for consumers and lead them to higher upkeep standards. Secondly, non-price competition is a main characteristic of the UK supermarket industry and has some advantages for consumers. In oligopoly, the merchandising mix is epitomized in the 4Ps- price, place, product and promotion. If one firm in this marketing structure wants to earn more profits, it has to take away gross revenue from other firms. Thus, supermarkets will tend to produce products, which needed for their consumers, and offer some special services. According to tutor2u (n.d), there are som e examples can show that consumers have benefit from it. For instance, store loyalty cards, home delivery systems, discounted petrol at hyper-markets, extension of spring hours (24 hour shopping in many stores) and internet shopping for consumers. As Supermarket (2008) found that Asda continued to improve its home shopping service. Asda is the UKs second biggest food home shopping business online and now covers more than 90% of the UK population. In order to meet demand in Christmas, Asda has increased plenty of delivery slots by 40% compared to 2007. Non-food products are also been offering to on-line shoppers by the supermarket in the UK. Therefore, the UK supermarkets indeed have benefit for consumers.However, the UK supermarket industry has several problems. The main disadvantage for the consumers is collusion. If one firm wants to increase the price in this market structure, it will not gain more profit because other firm will not react. As a result, firms may collude to set p rice. Collusion is two or more firms secretly agreed to control the prices, production or other aspects of the market. When the firms do so, collusion means the firms behavior tend to be a monopoly. Thus, they can set a monopoly price monopoly quantity produced, and allocate resources are inefficiently as monopoly. (Anderton, 2008323) study supermarkets in the UK have large amounts of power and may even collude to set prices, which is illegal. If the firms collude to set price, consumers need to worry about not only the high prices but also the possibility of a low quality product. As Harry (2007) reported that according to the Office of Fair Trading, Britains biggest supermarkets have been reparation the prices of milk, butter and cheese at a cost to the consumer of 270 million. Because of colluding with five leading dairy producers to raise the prices of milk, butter and cheese between 2002 and 2003, Asda, Morrisons, Safeway, Sainsburys and Tesco were accused by the OFT. Andrew Groves, the attraction of OFT investigation, said that Collusion between retailers is a serious illegal behavior and any exchange of information between retailers is certainly change prices so that the consumers become sufferers. (Harry, 2007)As Barriers to entry in the supermarket industry are extremely high, four main UK supermarkets have sharing the massive market. Small retailers are threatening to compete with large supermarkets and survive although the government will incentives them such as grants and tax relief. (Socyberty, 2007) Alexander (2008) points out that the High Street 2015 reported the erosion of the picayune shop is likely to have a catastrophic impact on future consumer superior. Consumers will be the biggest losers because limited choice of store brands, limited choice of available products, and limited choice of shopping locations, higher prices and reduced consumer service are the possibilities in 2015. Therefore, consumers choice is reducing and may lose their benefits. To sum up, the supermarket industry in the UK is less to the benefit of consumers. The firms in the supermarket industry are able to collude and set price. It is bad for the market to adjust the price. The demise of the small shop would mean that consumers would be disadvantaged. However, in oligopoly market, not all the structure is bad for the consumers. The market competition between the supermarkets can improve the technology in logistics and creations new productions to decrease the cost. If the government interventions are able to use more efficient to prevent collusion, then the price of the production will be more constant and available. If the government can have more policy to protect the small shop for the convenience of consumer, the supermarket industry will be more benefit to the consumer. References Alexander, A Bailey, A Hamlett, J and Shaw, G (2008) OnlineRegulating UK supermarkets an oral-history perspectivehttp//www.historyandpolicy.org/papers/pol icy-paper-70.html(Accessed 25th February 2010)AmosWEB Encyclonomic WEB*pedia (n.d) Online oligopoly http//www.amosweb.com/cgi-bin/awb_nav.pl?s=wpdc=dspk=oligopoly (Accessed 4th February 2010)Anderton, A. (2008). Economics (5th Edition) Harlow Pearson EducationHarry W (2007) Online UK supermarkets ameliorate milk and cheese prices 2007http//www.telegraph.co.uk/news/uknews/1563663/UK-supermarkets-fixed-milk-and-cheese-prices.html (Accessed 7th February 2010)Socyberty (2007) Online Government Intervention In The UK Supermarket Industryhttp//socyberty.com/economics/government-intervention-in-the-uk-supermarket-industry/ (Accessed 25th February 2010)Supermarket (2008) Online Middle class bargain hunters boost sales at Asdahttp//www.supermarket.co.za/news_detail.asp?ID=1082(Accessed 6th February 2010)Tutor2u (2004) Online A2 Economicshttp//www.tutor2u.net/economics/revision_focus_2004/A2_Oligopoly.pdf)(Accessed 7th February 2010)Tutor2u (n.d) Online oligopolyhttp//tutor2u.net/economics/c ontent/topics/monopoly/oligopoly_notes.htm(Accessed 6th February 2010)Uk Grocery Market (n.d) Online Uk Grocery Markethttp//www.oppapers.com/essays/Uk-Grocery-Market/157719 (Accessed 30th January 2010)