UK supermarket is a big industry. It is widely to know that there are four significant supermarkets in the UK. Accounting to Anderton, oligopoly is a market structure, which means a few of independent firms holding high market share. Therefore, the supermarket structure of UK is oligopoly. This essay will talk about several points about the oligopoly. Firstly, this essay will look at characteristics of oligopoly market. Then, will introduce the kinked demand curve and the principles of oligopoly power with regard to price stability. Thirdly, the essay will talk about non-price competition. The last, this essay will looks at the market conduct, which include marketing mix, price rigidity, and collusion. This essay consists of three parts: introduction, main body and conclusion.
The market characteristics include three points. The most prominent characteristic of oligopoly is small number of firms controlling major of market share. The second one is that firms are under the influence of each other. If a firm want to increase sales of the product that means they need to gain the sales from other firms.
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The next characteristic of oligopoly is that there are high barriers to entry the market. Capital cost is the biggest barrier to entry the new market thence, small companies do not have adequate capital to compete with corporation. (Barriers to entry, 2009)
The kinked demand curve theory is existing in non-price collusion. If a company increase the product price that other company will no be changed the demand curve of the product has high elastic, but profit of the goods are reducing. In spite of this, if a company decreases the product price that other companies need to reduce the price of product, therefore, the demand curve has less elastic. Consequently, businesses usually do not change price until margin cost is more than margin revenueï¼Œtherefore, price stability locate in a steady level in oligopoly market (tutor2u,B)
There are several particular actions of oligopoly, such as non-price competition, price rigidity and collusion. In the oligopoly market, there is usually non-price competition. Companies always use market mix to decided price positioning. Market mix is well known as 4 Ps. The first means price will be cheaper or more expensive than other firms. Promotion is the second P, which connotes a good way to increase public awareness about product. The next two are product and price. The corporations need to produce the right product and sell them in the right place and right price. In addition, price rigidity is other conduct of the oligopoly market. In oligopoly market, price usually has less change than price free market. Furthermore, the biggest problem in the oligopoly markets is that collusion, which behavior is illegal. Companies are usually cooperation with each other instead of competition. Cartel is an equipment price of the market, which decided by few companies. ( Anderton, 2008)
There are 6636 stores of supermarket and superstores and profit of them is 97.9 billion pounds.(OPPapers, 2010) As a result of this number, UK supermarket is a popular industry and many companies joint into this profession. In the UK, the four biggest supermarkets hold 74.4% of grocery market, including Tesco, Asda, Sainsburyâ€™s and Morrisons. (BBC News, A,2006). Supermarkets have collusion, which support to gain maximum profit and have less competitive with each other. Moreover, consumers are price recipients and they may pay high-price to low quantity product. As the statement from the OFT, the four supermarket were accused to manipulate price of milk, cheese and butter. This phenomenon is due to consumers overpaying to these products nearly 270 million pounds. (BBC News, C, 2007) This is no doubt that harms the interest of consumers.
On the contrary, when supermarkets begin the price war in non-price collusion, consumer could buy products cheaply, however, supermarket could earn less money that may cause side effect of the firms. In 2009, Tesco and Asda had a price war before the Christmas, because of the war; the sales for Asda were slowdown. In the oligopoly, price war will break the balance of the market, but the price protects the interest of the masses. Compare with the free market, oligopoly could help consumer know the brand in short term.
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In conclusion, oligopoly market structure has both advantages and disadvantages for consumers. The most serious problem of the market structure is collusion. Companies want to achieve the maximum benefits, so rights and interest of consumer was not being safeguarded. In the UK supermarket, government could integrative the oligopoly market and strengthen the regulation of business cooperation. Populace could strengthen supervision of the supermarket. Furthermore, government could decrease barriers to entry the market that could increase competition. Accounting to kinked demand theory, more competition in one industry will be result in price decrease.