Oligopoly in UK supermarket industry

There is no uncertainty that, supermarket has played an of import function in people ‘s societal life. There are many necessities in the supermarket for people to purchase them handily. In the UK, oligopoly widely exists in supermarket industry and the UK supermarket industry is extremely competitory by few big houses. In recent old ages, about 75 % of the market portion was dominated by four oligarchs. They are Tesco ( 31.6 % ) , Asda ( 17 % ) , Sainsbury ( 15.9 % ) , and Morrison ‘s ( 11.1 % ) . ( Miller, 2009 ) They are able to command the market because of such a large market portion. An oligopolistic industry is a market dominated by a few big providers with a really high grade of market concentration. ( Anderton, 2008 ) Harmonizing to Anderton ( 2008 ) , it is known that there are 5 features of oligopolistic market: the first point is the supplies in the industry are owned by some comparatively houses ; the 2nd point is high barriers to entry the industry ; the 3rd point is houses must be mutualist ; the 4th point is the competition between different houses in oligopolistic market is rigidness ; the 5th point is monetary value rigidness is that monetary values in oligopolistic market are normally stable. Hence, there is no uncertainty that the supermarket industry in UK conforms to this sort of state of affairs. The advantages and disadvantages of the consumers in oligopoly will be analyzed with the features and market behaviors of oligopoly.

As an oligopolistic market, there are many advantages in UK supermarket industry. Compared with monopolistic market, oligopolistic market is better than monopolistic market in most state of affairss. First, the bulk of supply is concentrated in the custodies of comparatively few houses so that consumers can acquire better productions and services. ( Anderton, 2008 ) Just like the UK supermarket industry, the four large companies hold the biggest per centum of the supply in supermarket. This means these four houses have more supermarket than others and sum of citizens in the UK prefer these four houses. Therefore, these four houses can sell more so that they can derive immense net income to develop themselves. With the development of their graduated table and power, they can take down their monetary value and sell more. This manner can salvage money straight through avoid waste of resources which is good for the UK society. After they gain immense net income, they could set more money to develop new engineering. What ‘s more, they may do the quality of their services better and intensified propaganda so that they could pull more consumers. This would make a circulatory system.

Second, it is convenient for consumers with high barriers for entry the oligopoly. ( Anderton, 2008 ) The houses in oligopolistic market can take down the monetary value with their immense graduated table and economic sciences. This could avoid others to acquire into the market. A stable monetary value would be appeared at this clip. For illustration, in the UK supermarket industry, Tesco, Asda and Sainsbury may hold collusions, so they all have about the same monetary value for each merchandise. Therefore, others may be harder to acquire into this market when they meet these three biggest houses together. Besides harmonizing to the kinked demand curve theory, to do the biggest net income, these three companies will non be easy to alter their monetary value. As the Figure 1 and 2, kinked demand curve is one of the most of import theories in oligopolistic market of economic sciences. ( Anderton, 2008 ) Consumers can acquire a stable monetary value at this clip. In add-on, there is another manner to avoid others to acquire into the market in the UK. It is the Legislation. The authorities confines the market and makes it difficult to acquire the planning permission. For the consumers, a stable market without many unsure alterations could be easier to happen in the oligopolistic market than others. This is convenient for consumers.

Third, consumers may salvage money because of the mutualist houses. In the oligopolistic market, if one house takes an action in the market, the others will follow to take some actions. ( Anderton, 2008 ) In the UK supermarket industrial, there are besides some competitions with each house. For illustration, Tesco and Asda launched a monetary value war. ( Fletcher, 2003 ) At first, Tesco announced that it will cut more than & A ; lb ; 80m worth of monetary value on a scope of nutrient and non-food merchandises. ( Fletcher, 2003 ) The monetary values of over 1000 merchandises will be come down. ( Fletcher, 2003 ) This makes a immense consequence in the market. After that, Asda announced that it plans to cut monetary values on many cardinal points in its George vesture scope. ( Fletcher, 2003 ) This is Asda ‘s reaction to the action of Tesco. As they lower their monetary values, consumers may be the biggest beneficiary.In this oligopolistic market, Tesco as the largest house wanted to take down their monetary value for deriving more market portion through selling mix, but another large company Asda will non let the rival to accomplish this mark. This can be shown as the kinked demand curve. ( Kinked demand curve under oligopoly, 2010 )

In a word, consumers may acquire a large net income through the monetary value war. Oligopoly in UK supermarket industry is good for the consumers. However, it still has some disadvantages. Oligopoly in UK supermarket industry is good for the consumers. However, it still has some disadvantages.

The first disadvantage is all the houses want to derive a higher net income in the oligopolistic market. Thus some unnatural and unjust schemes will be adopted. For illustration, they may conspire to do some policy, like raise the monetary value, to the goods together for deriving more unnatural net income and command the market. ( Anderton, 2008 ) This is truly unjust and bad for consumers since they should pay more for the production or services which may hold much higher monetary value than the standard monetary value.

Another disadvantage is excessively high barriers may do the degree of competition become lower. This will act upon the velocity of development and the attitudes of the houses. Fewer rivals may do the houses develop lower. In a brief, consumers may get down to can non acquire a good production and service in long tally.

To sum up, the supermarket industry in UK is realized as an oligopolistic market. In short tally, with a stable balance, consumers can obtain more benefits such as save money. This is more outstanding than the disadvantages. However, everything has two sides. In long tally, there are still some possible jobs in oligopoly. Now in the UK, oligopoly is suited for their supermarket industry. The job of illegal monetary value alteration and lower quality of production and service with less competitory. Then market may go nicer.

Mentions:

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

Fletcher, R. ( 2003 ) [ Online ] Tesco and Asda launch new monetary value war: Telegraph.

Available at: hypertext transfer protocol: //www.telegraph.co.uk/finance/2838462/Tesco-and-Asda-launch-new-price-war.html

( Accessed 27th February 2010 )

Miller, W ( 2009 ) [ on-line ] Economicss: oligopoly, U.K. Supermarket Industry. Available at: hypertext transfer protocol: //en.allexperts.com/q/Economics-2301/2009/10/oligopoly.htm ( Accessed 14th October 2009 )

Tutor2you ( 2010 ) [ on-line ] , kinked demand curve under oligopoly. Available at: hypertext transfer protocol: //tutor2u.net/economics/content/topics/monopoly/kinked_demand.htm ( Accessed 27th February 2010 )