The British supermarket is dominated by four chief providers, Tesco, Sainsbury, Asda and Morrison which formed a big retail market concatenation in the UK for several old ages. This is called oligopoly market [ Oligopoly Watch, 2003 ] . Harmonizing to 123helpme.com ( 2009 ) , an oligopoly is a market controlled by a few figure of bulky houses which are interdependent. First of all, four chief food markets in the UK have high grade of concentration. For illustration, in 2003, four supermarkets together have about three fourths market portion in the retail merchants market which can be seen in the diagram. [ Oligopoly Watch, 2003 ] . Furthermore, based on the immense economic sciences of graduated table and enable lower the monetary value to consumers, the barriers to entry for other providers in the market are high. It is believed by Climate Change Crop ( 2006 ) , “ consumer research told them that monetary value, quality and convenience were the cardinal standards for the mass of shoppers ” . Therefore, the UK prima houses in supermarket concatenation begin the high competitions in monetary value competition and non-price schemes. This essay will concentrate on analysing both monetary value competition and non-price competition among Tesco, Sainsbury, Asda and Morrison, and so evaluates the advantages and disadvantages for the clients.
Grocery store market portion
TescoA A A A A A A A A A A A A A A A A A A A A A A A A A 27.1 %
AsdaA A A A A A A A A A A A A A A A A A A A A A A A A A A 16.9 %
SainsburyA A A A A A A A A A A A A A A A A A A 16.1 %
Morrison/SafewayA A A A A 12.4 %
Sept 2003 rankings, Beginning: The Guardian
Consumers have benefits for salvaging money because of huge high competition and low-price scheme among the chief retail merchants in the UK. Those oligopoly houses such as Tesco, Sainsbury, Asda and Morrison are mutuality. It can be easy to take to monetary value rigidness among major UK supermarkets which assumes that oligopoly market have cooperation in puting stable monetary value in similar merchandises. In add-on, if one house increases its monetary value while other companies stay invariably, the house who increase the monetary value will lose market portion because consumers do non desire to buy high monetary value if they can besides purchase in original monetary value in other food markets. This is called kinked demand curve theory. [ Revision Guru, 2010 ] . As can be seen in the undermentioned diagram, P equals to monetary value. Q peers to measure. MC peers to fringy cost and MR is for fringy gross. Demand curve is more elastic for a monetary value rise than for a monetary value autumn. MC1 so a rise in costs to MC2 would ensue in stable monetary value.
Kinked demand curve theory [ Revision Guru, 2010 ]
Furthermore, it is reported by 123helpme.com ( 2009 ) that an action of one house contributes to the alteration of other rivals. For illustration, challengers will be compelled to forestall to loss market portion if a retail merchant lower its monetary value. In UK supermarket concatenation, apart from Sainsbury which focus on green goods quality and outstanding value to run into consumers ‘ demand, other three retail merchants include Asda, Tesco and Morrisons are largely low-cost based. To be more specific, Asda offers the cheapest monetary value of the three companies [ Thinking Made Essay, 2009 ] . Consequently, an fervent competition happens as a consequence of take downing monetary value of those three challengers. Consumers are in favor of taking the cheapest 1 to purchase because they can salvage money. However, when rivals stay their merchandises in high monetary value, clients should hold a positive facet in bear downing more money.
Both branded and qualitative merchandises can fulfill consumers ‘ demands but should be paid in higher monetary value than unbranded merchandises. Owing to the effectivity of the advertisement and selling which made by big houses, clients are willing to pay more money to purchase branded merchandises to fulfill their psychological demands. The Leading houses in the UK supermarket tend to bring forth branded merchandises to pull more attendings from consumers and so increase gross revenues. Jim morrisons, for case, has eight different classs for nutrient merchandising which consist of ‘The Best ‘ a premium scope ; ‘Eat Smart ‘ , a healthy scope ; ‘Bettabuy ‘ , economic system merchandises ; ‘Organic ‘ and the free-range ‘Free From ‘ aggregation [ Whitwell, 2006 ] . These schemes are besides barriers to those companies which want to come into the market. As a consequence, more consumers make their first pick to the branded merchandises. If the companies want to obtain more market portion among those rivals, they must besides bring forth merchandises which are in good quality. Therefore, the fixed and variable cost do the mark-up of the qualitative and branded merchandises higher than other field merchandises. Even though consumers spend more money to purchase these merchandises, they besides obtained the quality warrant of the production [ Tutor 2u, 2010 ]
Other monetary value competition such as price reduction by these UK food markets consequences in more money cost by consumers. In oligopolistic market, because major houses want to maximize their net income, they would acquire together and do a same understanding on merchandise measure or monetary value which means collusion [ S-cool.co.uk ( 2010 ) ] . Harmonizing to Oligopoly Watch ( 2003 ) , Asda, Tesco and Morrisons built their reputes as price reduction ironss to derive market portion rapidly, this lead to the diminution of Sainsbury which has been the biggest retail merchants since 1995. However, those three big supermarket ironss hope their price reduction can excite their consumers spend more money on other profitable merchandises. This monetary value scheme leads to the gross of the concatenation addition aggressively. The whole things cost costumiers much more money than they spend every bit usual because of the price reduction on inexpensive merchandises.
Though the monetary value schemes help a batch on increasing consumers ‘ outgo and repute, non- monetary value competitions which concentrate on other schemes for lifting market tenancy are besides an indispensable portion of pulling more buyers. Consumers have power to alter the shopping topographic point if they do non believe the service and quality of the original retail merchants satisfy them [ Biz/ed, 2005 ] . Non-price competitions comprise legion schemes such as mass media advertisement and selling, place bringing systems, advanced usage of engineering and cyberspace shopping for consumers [ Tutor 2u, 2010 ] . Harmonizing to Thinking Made Essay ( 2009 ) , the proportion that make consumers exchange to other trade names are correspondingly low. The taking UK supermarkets use non-price competitions to trust clients complete shopping and continue to buy in the following clip. Therefore, each of them concentrate on good service to shopping people because consumers may change their pick to other food market if they consider the 1 they buy normally do non content them.
In drumhead, Tesco, Sainsbury, Asda and Morrison use different monetary value schemes such as monetary value stableness and price reduction and non-price competition such as service. Consumers in the UK retail merchant concatenation have both positive and negative facets. Owing to the mutuality of oligopoly, Tesco, Sainsbury, Asda and Morrison use monetary value rigidness to command the market. Consumers have benefits for low-price scheme. Furthermore, the retail merchants use loss leader scheme ; concentrate on good value but high monetary value to consumers who may pass more money on those qualitative merchandises. What ‘s more, clients can take the best service supermarket because every food markets use non-price schemes to pull consumers ‘ attending. However, monetary value competition such as price reduction may be more money in other profitable things.
Mentions Section:
Biz/ed.co.uk ( 2005 ) “ Supermarkets and Oligopolies ”
hypertext transfer protocol: //www.bized.co.uk/dataserv/chron/news/2449.htm
Climate Change Crop ( 2006 )
“ UK supermarkets – Waking up to sustainability selling ”
hypertext transfer protocol: //www.climatechangecorp.com/content.asp? ContentID=4503
Oligopoly Watch ( 2003 ) “ British groceryA oligopoly ”
hypertext transfer protocol: //www.oligopolywatch.com/2003/10/13.html
Revision Guru.co.uk ( 2010 ) “ Oligopoly ”
hypertext transfer protocol: //www.revisionguru.co.uk/economics/oligopoly.htm
S-cool.co.uk ( 2010 ) “ Other characteristics of oligopoly ”
hypertext transfer protocol: //www.s-cool.co.uk/alevel/economics/market-structure-2/the-kinked-demand-curve-model.html
Thinking Made Essay, 2009 “ Strategic Analysis of Morrison, Asda and Tesco ”
hypertext transfer protocol: //ivythesis.typepad.com/term_paper_topics/2009/07/strategic-analysis-of-morrison-asda-and-tesco.html
Coach 2u.net ( 2009 ) “ Oligopoly ”
hypertext transfer protocol: //tutor2u.net/economics/content/topics/monopoly/oligopoly_notes.htm
Whitwell Stuart, 2006 “ Stretch potency: the supermarket trade names ”
hypertext transfer protocol: //www.intangiblebusiness.com/Brand-services/Marketing-services/News/Stretch-potential-the-supermarket-brands~390.html
123helpme.com ( 2009 ) “ First 1500 characters of UK supermarkets – Oligopolistic competition ”
hypertext transfer protocol: //www.123helpme.com/preview.asp? id=97935 ]
