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Benefits for consumers in an oligopoly market

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Published: Mon, 5 Dec 2016

This essay wills analysis the both advantages and disadvantages for consumers in this oligopoly market structure. Non-price competition and rigidity price are two main advantages for consumer, however, collusion make the loss of interests of consumer. An oligopolistic market can be defined as one market structure which has a few firms connected with each other to control the price and supply of market (Anderton, 2008). Compare with the characteristic of oligopoly, the UK supermarket industry are oligopolistic market. The most important factor is that the supermarket in UK have been dominated by four firms, which are Morrisons, Asda, Sainsbury’s and Tesco (SKYNEWS, 2009), they controlled approximately 75% grocery sales in UK ( natural choices, 2008). Therefore, the price of market is also controlled by them. In addition, these four firms brought more land in order to raise the barriers to entry (Daily Mail, 2007). Furthermore, firms would like to use the marketing mix to sell their product at right place, using a reasonable price and useful promotion. For instance, these four supermarkets will spend more money on advertising every year (telegraph, 2009). Finally, collusion is a common situation in oligopolistic markets, such as, price collusion in supermarkets in UK (Mail online, 2008).

Non-price competition is a marketing strategy of supplier to earning more profit. As market will make a decision depend on marketing mix, which include product, place, price, and promotion, consumer will get profit from this strategy (Anderton, 2008). Product is the main factor should be considered, it is homogenous in general. Businesses should determine the people who use their product firstly (Hall, 2009). For instance, if they sell toys, they will use bright colors or cartoon characters to attract children’s attention. In addition, owing to the improving technology, product innovation will increase in order to meet people’s needs. Therefore, market research will avoid businesses make mistake. At the same time, they also can know what kind of product consumers will buys.

Another benefit for consumer is the pricing strategy, price has been made depending on the quality of product (Marketing teacher, 2008). Therefore, consumer do not have to worry about the value of product over the quality, they will buy product in a fair market. According to news from mail online, ‘Aldi and Lidl beat the big four’ due to the cheaper price. As a consequence, these two stores win the consumers trust, 61 per sent much higher than Tesco and Asda which just less than 50 per sent (Mail Online, 2010). From this research, it is easy to see that price is a extremely import factor to businesses and consumers.

In spite of these two factors, place is also the important item. As we can see from the table on the below, with the increasing number of stores have opened, people’s life has become more convenient (Solar navigator, 2005). If consumers are used to buy a brand, they will not change their mind arbitrarily. Therefore, consumer will go to the same store at different place. It will make them assured. Furthermore, online shopping is also become a hot topic for people, they can shop at home, it not only left their time, but also saving traffic expenses. Moreover, 24 hours store also provide convenience for consumers.

Format

Number

Area (ft²)

Area (m²)

Percentage of space

Tesco Extra

100

6.6 million

613,000

27.2%

Tesco

446

13.9 million

1,290,000

57.4%

Tesco Metro

160

1.9 million

180,000

7.8%

Tesco Express

546

1.1 million

102,000

4.5%

One Stop

527

0.7 million

65,000

3.1%

Total

1,779

24.2 million

2,250,000

100%

Finally, promotion is the way businesses show their product to consumer. During this process, businesses will combine the features of product to choose a suitable promotional method. Businesses can use advertising slogan or show their product’s feature in order to draw people’s attention. Consequently, consumer can choose a brand of product which they prefer. Meanwhile, consumer will know more information about the product.

Moreover, consumer also can earn profit due to the rigidity price. Based on the kinked demand cure on the below, assume A is the market price, if one firm rise their price, other firms will not follow (S-cool, 2000). Therefore, consumers would like to buy cheaper one of same product. Above the point A is the price elastic, which means businesses will loss profit if they improve their price. On the other hand, if one firm decreases the price, others will relatively drop down at the same time. However, cutting price when demand is inelastic, which also make the revenue falling. As a result, businesses will not change their price random; they will try to keep a stable price in the market. Consequently, consumers have become the most beneficiary.

Nevertheless, collusion cause consumer lost much profit. It defined as a few number of rival firms make decision together for earning more profit. For instance, four supermarkets can control the supply of product; meanwhile, they will increase their price to get more abnormal profit. In addition, experienced businessman will have tacit, tacit collusion will occur that time. Formal collusion also destroys consumer’s benefit, because businesses always put their profit on the first place. As a consequence, consumer should face an unfair situation, because they have no ability to change the price (Anderton, 2009).

In conclusion, although collusion creates significant disadvantages for consumer¼Œthey can be benefited more from the marketing mix and rigidity price,. In specific, instead of price competition solely, consumer’s needs be satisfied by marketing mix. Business will use suitable promotion and price in different place, which depending on the type of their product. Furthermore, stable price let consumer use reasonable price to buy product they wanted. On the other hand, collusion has created disadvantages for consumers by control supply and price. However, government has already prepared to stop this phenomenon (Mail Online, 2009), which is a good news for consumers. Overall, these four supermarkets played a significant role in people’s normal life in UK; increasing number of requirement can be fulfilled. However, these four supermarkets take too much market share, it make high barrier for new firms. Government should consider reduce the barriers to entry, therefore, consumers will have more choice for buying product.


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