Oligopoly market structure in UK supermarket industry and benefit of consumers

Introduction

In UK supermarket industry, there are four main grocery markets Tosco, Sainsbury, Asda, Morrison or Safeway. (Oligopoly watch: 2007). It takes 72.5¼… of the market share. They also have 75¼… of the concentration ratio. These four companies are also interdependent, the discount strategies are similar. According to the socyberty (2007) there are high barrier to entry in the supermarket in UK. According to the characteristic of the UK supermarket industry, it is proved that the supermarket industry in UK is an oligopoly market.

According to Anderton (2004) the oligopoly is a kind of market structure that the whole market is controlled by the few interdependent firms. Anderton (2004) also stated the market structure of oligopoly is controlled by few firms, interdependent and barriers for the other firms to entry. The market conduction of oligopoly is non-pricing competition, price rigidity L-shape average cost curves and collusion. (Anderton: 2004). Tutor2you (2007) also shows that the oligopoly has an important characteristic that the products are similar which the few firms selling.

Therefore, according to the UK supermarket industry and the characteristic of oligopoly. The market structure of UK supermarket has the characteristics of the oligopoly.

Main Body

According to Anderton (2004) an important characteristic of oligopoly is interdependent. It is said that if a company make a market or price strategy, that will influence other firms. Thus, if one company increase or decrease it price, the other companies will also have some influences. These companies have to have the same agreement of how they take any change in price and output. The also need to take the similar strategies in order to maximize their abnormal profit. Thus its results in the non-price competition and price rigidity in the oligopoly market. It will avoid the price war. In perfect competition market, price is an important factor of competition. (Anderton: 2004). Therefore, in order to maximize their profit, some firms may set the product in low price which the quality can not be securitized. The customers will buy the product in low price but the can not have a high quality goods.

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Anderton (2004) stated that the market structure of oligopoly is the whole market is controlled by few firms. It has the same meanings that these companies take the large percentages of market share. In some inspects, it ensure the stability in the market. It can avoid the vicious competition in the market. In perfect competition market, the firms can take any strategies to make. Therefore some firms will ignore the product and services. It also causes the price war which is irrational.

Therefore the oligopoly market can indeed reduce the malignant competition in market. Non-price competition and price rigidity can avoid the vicious and irrational price competition. So the companies can ensure the quality of the product and the services. The customers can take advantages of the high quality good and the stable market.

On the other hand the oligopolies have some disadvantages because of the characteristic of non-price competition and the price rigidity. The firms are interdependent in oligopoly market. (Anderton: 2004). These companies are influenced by each other. So they set the same price of their product. That will leads to the lack of the price competition. In order to maximize their profit. They set the high price which results in the customers have to spend much money to buy products.

In addition, there are high entry barrier in oligopoly market. (Anderton: 2004). Thus, many smaller firms and some new company are not able to entry in the market. If the markets only controlled by few firms and new company can not entry, the new technology and new strategies are also blocking off the market. Therefore these few companies cannot to make progress in the marketing development. What’s more, if the companies are lack of competitions, they have low propulsion to make progress by themselves. Therefore, the quality of the products and services are not able to improve because of the stagnation of these few companies.

In the UK supermarket industry, the oligopoly market can avoid the vicious competition in the supermarket industry. It can also reduce the irrational price competition to protect the customers’ internets and stabilize the market. However, the lack of the price competition in the oligopoly market will also lead the supermarket raise the price too much. The high entry barriers result in the lack of competition make the supermarket hard to make progress. In these aspects, oligopolies in the UK supermarket industry have less benefit to customers.

Conclusion

In brief, according to the evidence in the body because of the characteristic of oligopoly including interdependent, non-price competition and price rigidity, oligopoly market can avoid the price war and the irrational competition. It can make the market stable and the customers can also take advantages in this market structure because they can buy high quality products in a reasonable price.

REFERENCES:

Anderton A. (2004) Economics (3rd ed.) Ormskirk, Causeway Press Ltd.

Oligopolywatch (2007) [Online], British groceryoligopoly. Available at:

(Accessed 19th February 2010)

Socyberty (2007) [Online], Government Intervention In The UK Supermarket Industry. Available at:

(Accessed 19th February 2010)

Tutor2u (2007) [Online], Oligopoly. Available at:

(Accessed 19th February 2010)