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The Oligopoly Supermarket Industry In The Uk Economics Essay

Supermarket is a diversification industry. Most markets are oligopolistic. Especially, Britannic supermarket industry is belongs to the oligopoly market. In generally, Tesco, Asda and M&S, these companies are the best examples in this area. Tesco has the biggest market in the UK, because they have developed a series of store models to supply the different needs of different customers. For example, they have Tesco Express, Tesco Metro stores, Tesco Superstores and Extra Hypermarkets. Both of these are according to customer needs change constantly adjust their offer of goods and sales practices. Furthermore, according to most markets could be said to be imperfectly competitive. A few are monopolistically competitive but the majority is concentrated markets, dominated by a few suppliers (Economics: 322). Moreover, oligopoly market structures are two key points. One is there are few firms exists in this market and they are interdependent. Such as, Tesco and Asda are belongs to a same company, but they have their own business model. From this, it reflects that this is a few companies exist in the market system, and rely on each other. Another one is there are barriers to entry to the industry. It means that if some companies want to enter this market, it is definitely not an easy thing. And they will reduce the market share of the few large producers, if they successfully joined into this industry. Also, non-price competition, price rigidity, L-shaped average cost curves and collusion are oligopolistic market conduct. In short, both advantages and disadvantages of the market structure for consumers will be show in this essay.

Price rigidity& kinked demand curved

In general, oligopoly is a good market system. Its price is rigidity. This can be seen the few companies had reached an agreement of the price, and then the price would not have huge fluctuations. So it can ensure that the interests of consumers. The reason of why Tesco sales in the Britain ranked first, because its price system. There are four different ways. They are promotion, low price, member price and guaranteed low-cost. Promotion, which put a slogan by ‘a different price-cutting promotions launched and surprises every day. Buy many more than the province.’ However, there is a time-limited promotion. Therefore, some consumers so as not to lose out on the product, then they will purchase it. Low price, who promised to sell all year around the low price, this is allowing consumers to buy inexpensive goods. Member price, it means that spending a dollar value accumulated to give something back cash coupons, and exclusive members of the lowest. Guaranteed low-price, which is a means of competition in the market. They always put the product pricing to a minimum, and then sold to consumers.

As mentioned above, there is no single theory of oligopoly. The two that are most frequently discussed, however, are the kinked-demand theory and the cartel theory. The kinked-demand theory is illustrated in Figure 2 and applies to oligopolistic markets where each firm sells a differentiated product. According to the kinked-demand theory, each firm will face two market demand curves for its product. At high prices, the firm faces the relatively elastic market demand curve, labeled MD1 in Figure 2(Cliffs Note, 2010).

Figure 2Profit maximization by an oligopolistic firm facing a kinked-demand curve

Corresponding to MD1 is the marginal revenue curve labeled MR1. At low prices, the firm faces the relatively inelastic market demand curve labeled MD2. Corresponding to MD2 is the marginal revenue curve labeled MR2 (Cliffs Note, 2010).

The two market demand curves intersect at point b. Therefore, the market demand curve that the oligopolistic actually faces is the kinked-demand curve, labeled abc. Similarly, the marginal revenue that the oligopolistic actually receives is represented by the marginal revenue curve labeled adef. The oligopolistic maximizes profits by equating marginal revenue with marginal cost, which results in an equilibrium output of Q units and an equilibrium price of P(Cliffs Note, 2010).

To sum up, the oligopoly market features include supply in the industry just have few firms and they must be interdependent. Nevertheless, the main supermarkets are dominated by Tesco, Asda and M&S. With the researching of the supermarket industry, it seems too many benefits for the consumers. For instance, some of the price systems which are promotion, low price, member price and guaranteed low-cost are benefits for the customer. All in all, this market structure of the oligopoly is a good form in UK.

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